oecd independent fiscal institutions review · the nao in light of international standards related...
TRANSCRIPT
OECD Independent Fiscal Institutions Review
Lithuania’s Independent Fiscal Institution Budget Policy Monitoring Department (BPMD) in the National Audit Office of Lithuania
Organisation for Economic Co-operation and Development
DOCUMENT CODE
Unclassified English - Or. English
1 January 1990
OECD Independent Fiscal Institutions Review
OECD Review of the Budget Policy Monitoring Department in the Lithuanian
National Audit Office
[email protected] and [email protected]
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the
delimitation of international frontiers and boundaries and to the name of any territory, city or area.
2 │
│ 3
Table of Contents
Acronyms and Terms ............................................................................................................................ 5
Summary and Recommendations ........................................................................................................ 6
Introduction and Review Methodology ............................................................................................... 8
Chapter 1: Context ................................................................................................................................ 9
1.1. Introduction ................................................................................................................................... 9 1.2. BPMD’s governance structure, accountability and stakeholder relations .................................. 10 1.3. Mandate ...................................................................................................................................... 13 1.4. Engagement with the global IFI community and adherence to international standards ............. 13 1.5. Conclusions ................................................................................................................................. 19
Chapter 2: Resources and independence .......................................................................................... 20
2.1. Introduction ................................................................................................................................. 20 2.2. Funding ....................................................................................................................................... 20 2.3. Human resources ......................................................................................................................... 23 2.4. Access to information ................................................................................................................. 28 2.5. Independence .............................................................................................................................. 30 2.6. Conclusions and recommendations ............................................................................................. 32
Chapter 3: Outputs and methodologies ............................................................................................. 34
3.1. Introduction ................................................................................................................................. 34 3.2. Outputs of the BPMD ................................................................................................................. 34 3.3. Technical assessment of BPMD methodologies ......................................................................... 36 3.4. Key issues for BPMD reports ..................................................................................................... 40 3.5. Conclusions and recommendations ............................................................................................. 47
Chapter 4: Impact ............................................................................................................................... 48
4.1. Introduction ................................................................................................................................. 48 4.2. Influence on the public debate .................................................................................................... 48 4.3. Improved financial management and transparency gains ........................................................... 54 4.4. Conclusions and recommendations ............................................................................................. 55
References ............................................................................................................................................ 56
Annex A. Review team and acknowledgements ................................................................................ 58
Annex B: Interview list ....................................................................................................................... 60
Tables
4 │
Table 1.1. Does the BPMD meet the OECD Principles for Independent Fiscal Institutions
(assessment of legislation and practice) ........................................................................................ 15 Table 2.1. Annual expenditure of NAO and BPMD 2015-2019 (EUR) ............................................... 21 Table 2.2. BPMD staffing levels 2015-2019 ......................................................................................... 26 Table 3.1. Assessment criteria ............................................................................................................... 36 Table 3.2. Assessment of BPMD’s methodological approaches ........................................................... 37 Table 3.3. Assessment of key outputs relative to peers ......................................................................... 46
Figures
Figure 1.1. OECD IFIs Institutional Models ......................................................................................... 11 Figure 2.1. Mandate and resources of EU IFIs with similar functions to the BPMD............................ 22 Figure 2.2. Organisational chart of the National Audit Office .............................................................. 23 Figure 2.3. Arrangements through which access to information is secured across OECD IFIs ............ 29 Figure 3.1. BPMD reports throughout the year ..................................................................................... 35 Figure 3.2. BPMD use of fan charts – Real GDP .................................................................................. 42 Figure 3.3. BPMD use of fan charts – General Government budget balance ....................................... 42 Figure 3.4. BPMD’s “heatmap” of the Lithuanian economy ................................................................ 44 Figure 4.1. BPMD media coverage and report publications 2015-2018 ............................................... 49 Figure 4.2. BPMD media mentions on Opinion on Draft Budget 2015-2018 ....................................... 50 Figure 4.3. Visits to BPMD Websites ................................................................................................... 51 Figure 4.4. BPMD and NAO web sessions and BPMD reports released 2016-2019 ............................ 51 Figure 4.5. Total appearances before parliamentary committees: Nov. 2014-Nov. 2018 ..................... 53
Boxes
Box 1.1. BPMD’s legislative framework .............................................................................................. 10 Box 1.2. The National Audit Office of Lithuania .................................................................................. 12 Box 2.1. Examples of IFIs in small countries that are led by a council ................................................ 25 Box 2.2. Central bank support for the Spanish IFI ................................................................................ 27 Box 2.3. Recruitment of non-nationals across OECD IFIs ................................................................... 27 Box 2.4. The UK OBR’s approach to regular updating its MoUs ......................................................... 30 Box 2.5. Examples of Service Level Agreements across OECD IFIs ................................................... 31 Box 4.1. Converting analysis into content for different audiences on digital communications
channels: UK Office for Budget Responsibility ............................................................................ 52
│ 5
Acronyms and Terms
AIReF Spain’s Independent Authority for Fiscal Responsibility
AG Auditor General
BPMD Budget Policy Monitoring Department
CBR Slovak Council for Budget Responsibility
CPI Consumer Price Index
EC European Commission
ECA European Court of Auditors
ESCB European System of Central Banks
EU European Union
EU-IFIs Network of EU Independent Fiscal Institutions
GDP Gross Domestic Product
ICT Information and Communications Technology
IFAC Irish Fiscal Advisory Council
IFI Independent Fiscal Institution
IMF International Monetary Fund
ISSAI International Standards of Supreme Audit Institutions
MIDAS Mixed-data sampling
MoU Memorandum of Understanding
MPs Members of Parliament
NAO National Audit Office
OBR UK Office for Budget Responsibility
OLS Ordinary least squares
PBO Parliamentary Budget Office
PBO Network OECD Network of Parliamentary Budget Officials and Independent Fiscal
Institutions
Seimas Lithuanian Parliament
SAI Supreme Audit Institution
UK United Kingdom
US United States
VAR Vector Autoregressive
6 │
Summary and Recommendations
The Lithuanian Budget Policy Monitoring Department (BPMD) was set up in 2015
as part of Lithuania’s commitment to sustainable fiscal policies under EU rules upon
joining the European Monetary Union. The BPMD has quickly built a reputation for solid
independent analysis. In a relatively short period, the institution has helped bring about
fiscal transparency gains for Lithuania and generated increased parliamentary and public
debate on fiscal issues.
Lithuania is a small country with a limited tradition of independent institutions.
This led the Government to propose that the independent fiscal institution function be set
up within the National Audit Office (NAO), rather than as a separate institution. The BPMD
is one of three institutions sitting under the NAO – the supreme audit institution, the EU
investment audit institution, and the independent fiscal institution (IFI) – a set-up unique
among its European peers.
The BPMD faces several challenges. The most prominent among them are:
a) The BPMD lacks a clear public identity and visibility, with many stakeholders
unable to distinguish between the work of the BPMD and the NAO. Similarly, the
leadership arrangements lack clarity for many stakeholders.
b) The BPMD lacks operational independence to ensure it can carry out its tasks
effectively over the long-term. The BPMD does not have autonomy over its reports
and operational decisions. Current institutional arrangements mean that the
BPMD’s budget is set at the discretion of the Auditor General.
c) The BPMD struggles to recruit and retain senior staff. This is exacerbated by
its inability to determine salary levels. The recruitment and other processes laid out
by the new Law on Civil Service do not appear to be appropriate for the BPMD or
the NAO in light of international standards related to independence for independent
fiscal institutions and supreme audit institutions.
Given the challenges around resourcing, in the short-term, the BPMD should continue
to invest in strengthening its capacity to deliver its existing mandate. While its self-initiated
work on long-term sustainability has been well-received, more resource intensive functions
such as policy costings should only be considered in the longer term should additional
resources become available. The BPMD could also look for opportunities to leverage
cooperation with others around policy costings.
To enhance the independence of the BPMD and bring it in line with the OECD Principles
for Independent Fiscal Institutions, the review recommends the following:
│ 7
1. The BPMD has benefitted from the strong leadership and support of the Auditor
General in its early formative years but the current institutional arrangements for the BPMD
do not offer sufficient guarantees of its ability to operate as a sustainable, autonomous and
independent institution into the future. To solidify the BPMD’s independence and to clarify
its operational arrangements, the BPMD should become a separate institution with its
own leadership. An arrangement that has worked well for many small OECD IFIs, has
been to enter into a service level agreement with a larger institution, buying back office
services. One option, should the BPMD become a standalone institution, would be for the
BPMD and the NAO to build on their good relationship, by setting up a service level
agreement between the BPMD and the NAO. Alternatively, a standalone BPMD could seek
to enter into a service level agreement with another independent institution such as the
Bank of Lithuania, as is the case, for example, for the fiscal council in Estonia.
2. In line with OECD Principle 2.5, the BPMD should have the autonomy to make
its own hiring decisions (including setting competitive salary levels and being able to hire
from international markets). The recruitment process laid out by the new Law on Civil
Service does not appear to be appropriate for the BPMD. Given the BPMD’s small size,
any loss of staff or delays in recruitment have an outsized impact on the institution.
3. To reinforce its budgetary independence, the BPMD should be able to set its own
budget, subject to parliamentary approval. OECD Principle 4.1 states that the
appropriations for IFIs should be published and treated in the same manner as the budgets
of other independent bodies.
4. Consistent with OECD Principle 7.4, the BPMD should develop a clearer
branding in its communications, including considering changing its name to more clearly
identify it as Lithuania’s independent fiscal institution. The BPMD should be represented
publicly by its own leadership and its reports should be published under its own name. The
BPMD communications strategy could also benefit from developing and better tracking
and analysing communications-related performance indicators, as well as other measures
to assess the BPMD’s impact.
5. To further enhance its transparency and credibility, the BPMD should publish its
macroeconomic forecasts, as well as details on its methodology in technical notes, staff
working papers, and other types of publications. In line with good practice, the BPMD
should also assess and publish its forecasting record over time and as compared with
other institutions. Given its current level of resources, the BPMD should focus on
strengthening its capacity to deliver its existing mandate.
8 │
Introduction and Review Methodology
1. In line with internationally agreed best practice, the Auditor General and the
Director of the BPMD committed to undertaking an independent external evaluation of the
BPMD. The NAO will also be undergoing another peer review by the European Court of
Auditors (ECA) and the Supreme Audit Institutions (SAIs) of Poland and the United
Kingdom.
2. The methodology for this review is anchored in the OECD Principles for
Independent Fiscal Institutions (OECD, 2014) and a subsequent evaluation framework
elaborated within the OECD Network of Parliamentary Budget Officials and Independent
Fiscal Institutions (PBO Network). Principle 9.1 of the OECD Principles for Independent
Fiscal Institutions states that:
“IFIs should develop a mechanism for external evaluation of their work – to be
conducted by local or international experts. This may take several forms: review of
selected pieces of work; annual evaluation of the quality of analysis; a permanent
advisory panel or board; or peer review by an IFI in another country.”
3. The Network of EU Independent Fiscal Institutions (EU-IFIs) reaffirmed this
OECD Principle in their document Defining and Enforcing Minimum Standards for
Independent Fiscal Institutions (2016).
4. The evaluation framework takes as a starting point internationally agreed standards
(e.g. the OECD Principles). As such, the review assesses the BPMD against these
standards, benchmarks it against peer institutions in OECD countries and, where possible,
identifies the difference it has made. The framework covers four main elements:
Context, the institutional setting and mandate of the BPMD
Resources and independence, human and financial resources, access to
information and independence
Outputs, the BPMD’s core products, including effectiveness of the methodology
Impact, of the BPMD’s work, including effectiveness of communications and
stakeholder confidence
5. The evaluation framework follows a performance framework approach used by
governments globally and leverages conventional evaluation tools such as stakeholder
interviews and peer review.
6. The OECD will publish the final report in English and Lithuanian, and make it
available electronically on the OECD’s website. The OECD PBO Network will discuss the
findings of the review at a peer review session during its 2020 Annual Meeting.
The review team
7. The review team included two members of the OECD Secretariat’s Budgeting and
Public Expenditures Division in the Directorate for Public Governance, two international
peers from the United Kingdom (UK) and Ireland, and one local peer. The review also
draws upon contributions from other relevant members of the OECD Secretariat and peers
within the PBO Network. A mission to Vilnius, Lithuania, for stakeholder interviews was
undertaken in April 2019 (see Annex B for more information).
│ 9
Chapter 1: Context
1.1. Introduction
8. Lithuania’s independent fiscal institution, the Budget Policy Monitoring
Department (BPMD) was set up as part of Lithuania’s commitment to sustainable fiscal
policies under EU rules upon Lithuania joining the European Monetary Union. It was
established1 as part of a 2014 legislative package implementing the European Fiscal
Compact and became operational on 1 January 2015 as a department within the National
Audit Office (NAO). Parliament discussed the establishment of the BPMD within the
debate on the larger reform package, however stakeholders noted that little particular
attention was paid to the IFI function apart from a discussion on whether to place the IFI
in the Bank of Lithuania or NAO.
9. Although the BPMD was not directly established in response to the financial crisis,
the crisis did have severe repercussions on Lithuania’s public finances. At the height of the
crisis the total budget deficit rose from .8% of GDP in 2007 to 9.1% in 2009, despite
substantial consolidation measures. Lithuania continued to pursue consolidation measures
(mainly on the expenditure side) until it narrowed to 3.1% of GDP in 2012 (still short of
reaching the target of 3.0% of GDP as set in the 2012 convergence programme).2 More
recently, Lithuania’s economic growth has been relatively robust, mainly fuelled by
domestic demand, particularly household consumption.3
10. Lithuania is a small country relative to other EU and OECD members with a limited
tradition of independent institutions and almost no tradition of think tanks or institutes
working on public finances. These considerations led to the BPMD being set up within the
NAO, an institution which already had a strong reputation for independence. The
alternative of hosting the IFI at the Bank of Lithuania, which arguably enjoys even more
independence and autonomy given the independence of its budget and staffing
arrangements, and the backing of the European System of Central Banks (ESCB), was ruled
out according to stakeholders as potentially violating ESCB rules and deviating too much
from the Bank’s main activities, despite this arrangement being in place in other EU
countries.4
11. Since its establishment, the BPMD has enjoyed broad cross-party support. It has
already experienced one change of government in 20165. Parliamentary elections to form
1 Constitutional Law on the Implementation of the Fiscal Treaty of the Republic of Lithuania, 6 Nov.
2014: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/c4be7b32bb6b11e4a939cd67303e5a1f
2 Source for figures, Statistics Lithuania.
3 According to the Bank of Lithuania Lithuanian Economic Review (March 2019), see:
https://www.lb.lt/uploads/documents/files/musu-veikla/ekonomikos-analize-
prognozes/lietuvos_ekonomikos_apzvalga_2019-03_en.pdf
4 For example, Lithuania’s close neighbour, Estonia, has a Fiscal Council that works under the
auspices of Estonian central bank.
5 Government changed from a Social Democratic Prime Minister supported by a coalition of several
parties to an Independent prime minister supported by a coalition of the Lithuanian Farmers and
10 │
a new government will take place in 2020. A new president – who is independent from any
political party, as was the previous president – was elected in 2019. At present, the BPMD
does not consider there to be an existential threat to its existence from any political party
or major interest group. It should be noted that the President will have to ratify amendments
to the NAO’s legislation if passed in parliament. As a candidate he criticised attacks on the
NAO and the Bank of Lithuania and publicly supported the changes proposed on the new
Law on the National Audit Office.6 The new Auditor General (AG) for the NAO will also
be appointed by the Seimas on the recommendation of the President when the current AG’s
term ends in April 2020.
Box 1.1. BPMD’s legislative framework
The Constitutional Law on the Implementation of the Fiscal Treaty (2014) established the
BPMD to monitor Lithuania’s commitments to sustainable fiscal policies under the
European fiscal framework and sets out the duties of the BPMD. The Law underpins the
BPMD’s independence, stating that “the head of the monitoring authority, his deputies,
civil servants and other officials of the monitoring authority working under employment
contracts must not accept instructions from any other institution and person”.
The Law on National Audit Office (2002) sets out specific protections to ensure that both the
Auditor General and the BPMD Director are independent and non-partisan. However,
concerns have been raised that the 2002 law is insufficient and new legislation has been
submitted to parliament that aims to reinforce the independence of the NAO.
Changes to the Law on Civil Service (1999, amended in 2002 and 2019) adopted in 2019 mean
that the HR recruitment function and performance assessments for civil servants –
including the Director and staff of the BPMD and staff of the NAO – is now centralised
within the Government. These changes have been strongly opposed by the current Auditor
General as limiting the NAO’s functional independence and ability to carry out its duties.
In addition to its enabling legislation, the BPMD has developed its own internal regulations
covering their tasks, functions, rights and organisation of activities.7
Source: Authors, based on public information.
1.2. BPMD’s governance structure, accountability and stakeholder relations
12. As noted above, the BPMD sits in Lithuania’s NAO. The NAO is unique in the
European context in that it comprises three institutions, the Supreme Audit Institution, the
European Union Investment Audit Department and the Budget Policy Monitoring
Department (Lithuania’s independent fiscal institution). Only two other OECD IFIs, France
and Finland, have chosen a similar model placing the IFI function in the supreme audit
Greens Union (currently the largest party in parliament) and the Social Democratic Party of
Lithuania.
6 See article on DELFI, a major internet news portal for Estonia, Latvia and Lithuania:
https://www.delfi.lt/news/daily/lithuania/gitanas-nauseda-kas-vyksta-musu-
valstybeje.d?id=80807061https://www.lrytas.lt/lietuvosdiena/aktualijos/2019/04/04/news/preziden
to-posto-siekiantis-g-nauseda-nepriklausomos-institucijos-yra-torpeduojamos--9841810/
7 Internal regulations are available in Lithuanian at: http://www.ifi.lt/puslapis.aspx?id=2
│ 11
institution, although Finland has now also established a separate Economic Policy Council.
In the Finnish case independent monitoring and evaluation is assigned to the institution
within the audit institution and the Economic Policy Council now gives ex ante advice.
Figure 1.1. OECD IFIs Institutional Models
Note: The data includes 36 OECD IFIs, including three subnational IFIs in Australia (Victoria), Canada
(Ontario) and the United Kingdom (Scotland) and one supra-national IFI, the European Fiscal Board. The data
includes two IFIs for Austria, Finland, Greece, and Ireland. IFIs in non-OECD countries are excluded.
Source: (OECD, 2019).
11
22
3
Legislative budget office Fiscal council Audit institution
12 │
Box 1.2. The National Audit Office of Lithuania
The NAO has as its mission to “help the State in managing public funds and property
wisely”. Although legally a single institution headed by the Auditor General, the NAO
performs the functions of three independent institutions:
1. The Supreme Audit Institution undertakes financial (compliance) audits and
performance audits.
2. The European Union Investment Audit Department evaluates implementation of
European Funds.
3. The Budget Policy Monitoring Department endorses the macroeconomic forecasts
used for fiscal planning; assesses budgetary forecasts, assesses ex ante and ex post
fiscal rules, assesses draft annual budgets, and monitors fiscal policy and budgetary
execution.
Source: Authors, based on public information from the National Audit Office.
13. Placing the independent fiscal institution function within the NAO has allowed the
BPMD to benefit from the NAO’s already well-established reputation for independence
and credible analysis. It is also able to draw upon shared administrative and financial
services. However this arrangement also poses certain risks to its independence,
particularly around budget and staffing, which will be discussed in more detail in
subsequent chapters. Stakeholders also noted that the BPMD has struggled to establish a
distinct public identity among stakeholders and the public. Finally, while the BPMD
benefits from support services, there is little overlap in terms of the technical skills that can
be fruitfully shared.
14. The BPMD is headed by Lithuania’s AG who has overall responsibility for its
management decisions and, along with the BPMD Director and senior BPMD staff,
represents the BPMD publicly. The AG is nominated by the President and approved by the
parliament for a term of five years, renewable once. The AG is responsible for hiring the
BPMD Director. In practice, day to day management is carried out by the BPMD Director.
The Deputy AGs are consulted on the BPMD’s reports and reports are reviewed signed off
by the AG.
15. In line with the OECD Principles, in April 2016 the BPMD established a three-
member Advisory Panel of international experts. The Advisory Panel provides advice on a
range of issues, as well as methodological assistance. While the BPMD does not officially
subject its work to other sorts of peer review, it may receive comments from the Bank of
Lithuania and it benchmarks its reports against the reports of other IFIs. The BPMD has
enjoyed support from professional partners nationally and internationally (see also section
1.4).
16. As a part of the NAO, the BPMD is accountable to the Seimas. As noted above the
appointment of the AG must be approved by parliament. The Seimas – in particular the
Committee on Audit and the Committee on Budget and Finance – regularly uses BPMD
analysis and the AG, the Director of the BPMD and other senior BPMD staff regularly go
before parliamentary committees to give evidence. Despite being a young and small
institution, the BPMD is well received at the parliament, but its work is not always
distinguished from that of the other functions of the NAO. The parliament does not have
independent budgetary analysis capacity of its own.
│ 13
17. The Government is not formally required to respond to reports and
recommendations from the BPMD, although in practice they have commented in
committee meetings or in the media. The BPMD may hold informal talks with the Ministry
of Finance and Bank of Lithuania before an official issuance of the IFI opinion. The BPMD
has a close working relationship with the Bank of Lithuania in general and frequently
exchanges views on economic development and public finances. Apart from
macroeconomic forecasting done by private banks, there are no other institutions providing
similar or complementary analysis.
1.3. Mandate
18. The BPMD has a fairly broad mandate to promote sustainable public finances and
stable economic development. The BPMD endorses the macroeconomic forecasts used for
fiscal planning; assesses budgetary forecasts, assesses ex ante and ex post fiscal rules,
assesses draft annual budgets, and monitors fiscal policy and budgetary execution. As such,
the BPMD is legally mandated to submit five opinions to Parliament each year (see Chapter
3 for details).
19. In the case of exceptional circumstances, the BPMD is mandated to give its opinion
on the situation of the economy once per quarter. Until now, there has been no unusual
fiscal event and the BPMD has not had to issue any opinion in this regard. Should this
change, it will be a significant test of the BPMD as real resistance to the IFI function may
only become apparent when risks of non-compliance or substantial disagreements with
government arise.
20. BPMD analysis covers the general government sector. In accordance with the
Constitutional Law on the Implementation of the Fiscal Treaty the BPMD began
monitoring compliance of municipalities with fiscal rules on 1 January 2016 for
municipalities where planned appropriations did not exceed 0.3 % of the previous GDP and
on 1 January 2018 for municipalities where planned appropriations exceeded 0.3 % of the
previous GDP.
21. The BPMD may undertake work at its own initiative. In 2016 and 2017, the BPMD
took the initiative to publish an assessment of long-term fiscal sustainability. In 2018, the
BPMD published an assessment of the Stability Programme; this will be an annual report
coming out in May.
22. The policy costing function across government ministries is very weak. Some
stakeholders expressed interest in the BPMD undertaking a role in policy costings.
However, OECD IFIs generally find that this is a resource intensive function and at present
the BPMD lacks the necessary capacity.
1.4. Engagement with the global IFI community and adherence to international
standards
23. Article 9 of the Constitutional Law on the Implementation of the Fiscal Treaty
states that “the monitoring authority shall have the right to involve independent Lithuanian
and foreign experts”. From the outset, the BPMD has made a concerted effort to learn from
the experience of more established IFIs and to share good practice. The BPMD is an active
participant in the regional Baltic-Nordic IFI Network, as well as the EU IFI Network and
the OECD’s PBO Network. Outside of the IFI community, international organisations, such
as the European Commission, the OECD and the IMF, engage with the BPMD and its work
when carrying out assessments in Lithuania.
14 │
24. Standards developed by the OECD and EU IFI communities, as well as the rich
literature on independence for other independent institutions such as central banks and
supreme audit institutions, provide a useful comparative context in which to evaluate the
BPMD. The BPMD stands apart from the majority of its peers in that it is located within
the National Audit Office. As such, any impediments to the independence and good
functioning of Lithuania’s NAO, also impact upon the BPMD. The review team supports
efforts by the NAO to review and strengthen the mechanisms for its independence in line
with good international practice for SAIs.
25. Analysis demonstrates that the BPMD globally meets the OECD Principles many
of which are reaffirmed by the EU-IFI Minimum Standards (see Table 1 below). This
adherence to defined global standards provides the BPMD with legitimacy among peer
institutions and should provide confidence to its stakeholders in Lithuania. Nevertheless,
the review identifies risks inherent to the BPMD’s current institutional arrangements and
areas where the BPMD’s functional independence could be reinforced.
│ 15
Table 1.1. Does the BPMD meet the OECD Principles for Independent Fiscal Institutions (assessment of legislation and practice)?
Key: =yes; =partial; = no
OECD Principle Is there
related EU-
IFI
Principle
Assessment Notes
1. LOCAL OWNERSHIP
1.1 Broad national ownership, commitment, and
consensus across the political spectrum. Models from
abroad should not be artificially copied or imposed.
In preamble
1.2 Local needs and the local institutional
environment should determine options for the role and
structure of the IFI.
In preamble The institutional model selected for the BPMD reflects
Lithuania’s institutional landscape, however stakeholders do not
always distinguish the work of the BPMD from that of the other
functions of the NAO.
2. INDEPENDENCE AND NON-PARTISANSHIP
2.1 Does not present its analysis from a political
perspective; strives to demonstrate objectivity and
professional excellence, and serves all parties. IFIs
should be precluded from any normative policy-
making responsibilities to avoid even the perception
of partisanship.
Although it is not legally prohibited from doing so, the BPMD
refrains from providing normative advice or specific
recommendations on policy issues.
2.2 The leadership of an IFI should be selected on the
basis of merit and technical competence, without
reference to political affiliation. The qualifications
should be made explicit.
Although this has been the case to date, should the NAO (and
therefore the BPMD) continue to be subject to the new Law on
Civil Service, the recruitment process and performance
assessments for the BPMD Director would be centralised within
the Government presenting a potential risk to this principle.
2.3 Term lengths & number of terms that the
leadership of the IFI may serve should be clearly
specified in legislation along with dismissal criteria &
process.
The Auditor General holds a five-year term renewable once. Legislation sets out six criteria for the AG’s dismissal. In
accordance to the Constitution, the Seimas, by a majority vote of
all of its Members, may dismiss the Auditor General from office
following a loss of confidence. This provision generates a risk to
16 │
the independence of the Auditor General and is not in line with the
International Standards of Supreme Audit Institutions (ISSAI).
The BPMD Director is a permanent position subject to the Law on
Civil Service.
2.3 The leadership’s term should optimally be
independent of the electoral cycle.
The AG has a five-year term of office, delinked from the political
cycles of the President and Parliament. The BPMD Director is not
subject to term limits.
2.4 The position of head of the IFI should be a
remunerated and preferably full-time position. Strict
conflict-of-interest standards should be applied.
This applies to both the AG and the Director of the BPMD.
2.5 The leadership of the IFI should have full freedom
to hire and dismiss staff in accordance with applicable
labour laws.
The new Law on Civil Service limits independence. It centralises
recruitment and performance assessments for NAO and BPMD
staff within the Government and defines salary bands and job
titles among other things.
2.6 Staff should be selected through open competition
based on merit & technical competence, without
reference to political affiliation, in line with civil
service conditions.
See above.
3. MANDATE
3.1 The mandate should be defined in legislation,
including types of reports and analysis they are to
produce, who may request them and timelines for
release.
3.2 IFIs should have the scope to produce reports and
analysis at their own initiative and autonomy to
determine their own work programme within their
mandate.
BPMD publications are reviewed by the AG and signed off by the
AG. Deputy AGs are consulted on BPMD publications.
3.3. Clear links to the budget process should be
established within the mandate.
4. RESOURCES
4.1 The resources allocated to IFIs must be
commensurate with their mandate.
In general, the BPMD’s level of funding is similar to what was
anticipated when established.
4.1 The appropriations for IFIs should be published
and treated in the same manner as the budgets of other
independent bodies.
The BPMD’s budget allocation is part of the NAO budget.
According to the Law on the Budget Structure the NAO is an
“appropriation manager” and the AG is Head of the “appropriation
│ 17
manager”. As such the BPMD’s budget at the discretion of the
Auditor General. Although the BPMD has its own budget line
within the NAO’s budget, “For the implementation of the budget
policy monitoring functions”, these resources are not ring-fenced
and may be adjusted. It should also be noted that there are potential
concerns around the independence of the NAOs budget which will
be covered in a forthcoming review. To align with ISSAI-10.8, the
NAO should be free to propose its budget to the Parliament
without interference from the executive; moreover, it should have
the right of direct appeal to the Legislature if resources provided
are insufficient.
4.1 Multiannual funding commitments may further
enhance IFIs independence and provide additional
protection from political pressure.
The BPMD’s budget is set by the Auditor General on an annual
basis along with provisional information on allocations for the
subsequent two years.
5. RELATIONSHIP WITH THE LEGISLATURE
5.1 Mechanisms should be put in place to encourage
appropriate accountability to the legislature.
The Auditor General is appointed by Parliament, and the NAO
submits its annual work program and its annual report to
Parliament’s Audit Committee. The BPMD’s work programme
and annual report are an integral part of these. The BPMD submits
its reports and opinions to parliament. NAO leadership and BPMD
senior staff appear before parliamentary committees.
5.1 The budgetary calendar should allow sufficient
time for the IFI to carry out analysis necessary for
parliamentary work.
5.2 The role of the IFI vis-a-vis the parliament’s
budget committee (or equivalent), other committees,
and individual members in terms of requests for
analysis should be clearly established in legislation.
While the Law does not clearly lay out how BPMD should
respond to parliamentarians’ requests for analysis, in practice, the
few requests that the BPMD has received have been in relation to
compliance with the fiscal rules and so were related to BPMD core
analysis. Answers to such requests are provided through an
official letter from the AG drawing on the official reports of the
BPMD.
6. ACCESS TO INFORMATION
6.1 IFI should have full access to all relevant
information in a timely manner.
In practice, the BPMD tends to be given access to relevant
government information in a timely manner. Access to
18 │
information is supported by MoUs signed between the BPMD and
government stakeholders.
6.2 Any restrictions on access to government
information should be clearly defined in legislation.
7. TRANSPARENCY
7.1 IFI should act as transparently as possible,
including full transparency in their work and
operations.
The BPMD has its own website detailing its work and operations.
7.2 IFI reports and analysis (including underlying data
and methodology) should be published, made freely
available to all and sent to parliament.
All opinions and reports are published and made available on the
BPMD’s website, however due to resource constraints the BPMD
has not published macroeconomic forecasts and underlying
methodologies.
7.3 The release dates of major reports and analysis
should be formally established, especially in order to
coordinate them with the release of relevant
government reports and analysis.
Although not specified in legislation, the publication dates of each
of the BPMD’s reports are formally established in a calendar made
public on its website.
7.4 IFIs should release their reports and analysis, on
matters relating to their core mandate on economic
and fiscal issues, in their own name.
Under the current institutional arrangements, BPMD reports are
signed by the AG and released under the logo of the NAO.
8. COMMUNICATIONS
8.1 IFIs should develop effective communication
channels from the outset.
Although the BPMD relates with the media, its institutional
arrangements mean that even the specialist media do not always
distinguish the BPMD’s functions from that of the NAO.
9. EXTERNAL EVALUATION
9.1 IFIs should develop a mechanism for external
evaluation of their work.
Advisory board established (2016) and first external evaluation
conducted by international experts (2019).
│ 19
1.5. Conclusions
26. Although it is still a young and small organisation, the BPMD has quickly built a
reputation for solid independent analysis among stakeholders. The BPMD has also been
proactive in sharing experiences and learning from counterparts in the Bank of Lithuania
and peer institutions internationally.
27. The BPMD’s legal framework, governance, mandate and institutional landscape
inform and affect its operations. The choice to place the IFI function in the NAO reflects
the fact that Lithuania is a small country with a limited tradition of independent institutions
and think tanks or institutes working on the public finances.
28. This institutional set up is rare among OECD IFIs. It has brought both advantages
and challenges to how the BPMD operates as an IFI, in particular in relation to budget,
staffing, as well as visibility of the BPMD with stakeholders. Due to the current institutional
arrangements, any impediments to the independence and good-functioning of Lithuania’s
NAO also impact directly upon the BPMD. The review team supports efforts by the NAO
to review and strengthen the mechanisms for its independence in line with good
international practice for SAIs.
20 │
2. Chapter 2: Resources and independence
2.1. Introduction
29. This chapter looks at the extent to which the BPMD has sufficient resources and
independence to deliver its mandate. This includes human and budgetary resources, but
also access to information. The extent to which these resources are predictable and
sustainable impacts whether the IFI has the necessary level of independence to carry out its
work. According to the OECD Principles, an IFI must have resources commensurate with
its mandate to fulfil it in a credible manner and mechanisms in place to prevent pressure
being placed on the institution through the budget (Principle 4.1). An IFI must also have
access to all relevant information in a timely manner, including methodology and
assumptions underlying the budget and other fiscal proposals (Principle 6.1). Finally, non-
partisanship and independence are pre-requisites for any successful IFI (Principle 2.1).
30. Analysis indicates that the BPMD has received resources commensurate with its
mandate. However, it lacks budgetary independence as compared to peer IFIs and does not
align with the OECD Principles in this regard. The BPMD cited the general shortage of
economists and public finance experts in Lithuania, together with the BPMD’s low salary
levels and some restrictions on hiring non-nationals, among reasons they have struggled to
recruit and retain the skilled staff necessary to deliver its work. Although the BPMD has a
Director who leads its day to day operations, the post holder reports to the Auditor General
who takes key decisions such as funding for the institution and signs all of the BPMD’s
publications. While the BPMD’s positioning within the NAO has served it well in its initial
years, it also raises questions as to how to strengthen the institution’s visibility,
independence and sustainability in the longer term. The BPMD has had relatively good
access to information, although at times it has experienced problems with the quality and
timing of responses.
2.2. Funding
31. The BPMD is funded through the budget of NAO. In general, the BPMD’s current
level of funding is similar to what was anticipated by stakeholders in Lithuania at the time
of its creation, and its resources are viewed as commensurate with the scope of its mandate.
Its budget is set by the Auditor General on an annual basis along with provisional
information on allocations for the subsequent two years. Although the BPMD has its own
budget line within the NAO’s budget, “For the implementation of the budget policy
monitoring functions”, these resources are not ring-fenced and can be adjusted.
32. The NAO is funded by the State budget, with the exception of the European Union
Investment Audit Department function which is financed from the EU structural funds. At
present its budget is set by the Ministry of Finance. The Seimas approves the State budget
and supervises its execution. However, there are moves to strengthen the independence of
the NAO and its accountability to parliament. In particular, a draft law currently under
consideration by parliament proposes to amend the Statute of the Seimas of the Republic
of Lithuania so that the NAO’s budget allocation be subject to the consideration of the
Audit Committee.
33. In 2019, the allocation for the BPMD accounted for just under 3% of the NAO’s
budget. However, this does not take into consideration certain costs, in particular the costs
│ 21
related to NAO support staff that also support the BPMD, or NAO management support to
the BPMD. The NAO has indicated that should these costs be taken into consideration the
budget would increase considerably.
34. While the budget allocation for the NAO has remained stable over the period 2015
to 2019 (with increases only from restoration of unlawfully reduced salaries for civil
servants8), the budget allocation of the BPMD has increased 73%. This has been driven by
growing payroll costs as the BPMD sought to hire its full staff complement. Staff costs
made up 82% of BPMD expenditure in 2018. The remainder of the BPMD’s costs are
overheads (e.g. rent of tangible and intangible assets, communal services, business trips,
training courses, the purchase of other goods and services, etc.).
Table 2.1. Annual expenditure of NAO and BPMD 2015-2019 (EUR)
2015 2016 2017 2018 2019
Compound
average
growth rate
2015-2019
NAO 8,475,000 8,662,000 8,674000 8,662,000 9,272,000 2.3%
BPMD 141,985 203,703 194,944 242,820 245,000 14.6%
BPMD as a
% of NAO 1.7% 2.4% 2.2% 2.8% 2.6% N/A
Note: Figures for the BPMD do not include costs related to support provided by NAO staff. Figures for 2019
are indicative. The BPMD figure for 2019 has been adjusted to remove the exceptional costs associated with
this OECD Review.
Source: Authors, based on information provided by the BPMD.
35. Although the financial resources available to the BPMD have significantly
increased in recent years, its resourcing remains lower than that of peer institutions with
similar functions (see Figure 2.1 below). This may partly be explained by Lithuania being
a small country relative to EU peers, as well as having lower labour costs.
8 The NAO was allocated additional funds following the ruling of the Constitutional Court on the
restoration of unlawfully reduced salaries for civil servants during the economic crisis (2009-2013).
22 │
Figure 2.1. Mandate and resources of EU IFIs with similar functions to the BPMD
Note: The Spanish IFI has a broader mandate additional responsibility for sub-national fiscal oversight and
spending review which partly explains its additional resourcing. Data on the budget for Austria are not
available. Staff includes council members.
Source: (OECD, 2019).
36. The current Auditor General has been receptive to the growing funding needs of
the BPMD. The BPMD has never been threatened with budget cuts or similar action when
perceived as critical by the Government. Nevertheless, the BPMD’s budget stands at the
entire discretion of the Auditor General and there is the risk that a future Auditor General
may not view the BPMD as favourably when it comes to the allocation of resources across
the three institutions within the NAO.
37. A number of stakeholders expressed a preference for increased budgetary
protections for the BPMD, and in particular, the BPMD having the ability to set its own
budget subject to approval by the Audit Committee at the Seimas. This would also bring
the BPMD in line with the existing practices of many OECD IFIs and Supreme Audit
Institutions (SAIs), along with the OECD Principles (Principle 4.1), which state that:
“the appropriations for IFIs should be published and treated in the same manner
as the budgets of independent bodies, such as audit offices, in order to ensure their
independence” (OECD, 2014).
38. Alternatively, it would be beneficial for the BPMD to have its own budget line
within the State budget document. This would provide greater transparency on the level of
resourcing given to the BPMD. This good practice of having a separate budget line has
already been adopted in almost half of OECD countries with an IFI (OECD, 2019).
39. It should also be noted that there are potential concerns around the independence
of the NAOs budget which will be covered in a forthcoming review. To align with ISSAI-
10.8, the NAO should be free to propose its budget to the Parliament without interference
from the executive; moreover, it should have the right of direct appeal to the Legislature if
resources provided are insufficient.
│ 23
2.3. Human resources
2.3.1. Leadership
40. As the BPMD is part of the NAO, the head of the BPMD is the Auditor General.
The Director of the BPMD sits below the Auditor General, as shown in Figure 2.2. The
Director of the BPMD directly reports to the Auditor General. The Deputy AGs also
comment on all of the BPMD’s reports.
Figure 2.2. Organisational chart of the National Audit Office
Note: Organisational chart as of January 2019.
Source: https://www.vkontrole.lt/page_en.aspx?id=217
41. The Auditor General is appointed by Parliament on the recommendation of the
President of the Republic for a five-year term, renewable once. This is the same term length
as the presidential term (although not necessarily concurrent) and longer than the legislative
term of four years. The Law on the National Audit Office sets out that the Auditor General
can be any citizen of the Republic of Lithuania who has an impeccable reputation, is not
older than 65 years old, and has a higher university education. It also sets out six criteria
for dismissal. The Auditor General may be dismissed: i) when they resign, ii) when their
term expires, iii) in the case of a no-confidence vote, iv) due to illness, v) in case of a court
decision where they are found guilty and vi) in the case of them losing their Lithuanian
citizenship. Regarding the third provision, in accordance to the Constitution, the Seimas,
by a majority vote of all of its Members, may dismiss the Auditor General from office
following a loss of confidence. This provision generates a risk to the independence of the
Auditor General and is not in line with the International Standards of Supreme Audit
Institutions (ISSAI).
24 │
42. By contrast, the appointment and dismissal of the director of the BPMD is subject
to different legal procedures. While the Law on National Audit Office sets out that the
NAO can select requirements for, and restrictions on, the Director’s recruitment, it is the
Law on Civil Service that defines responsibilities, remuneration and also the procedure for
their recruitment. Changes to the Law on Civil Service that came into force in January 2019
mean that the HR recruitment function for civil servants – including the Director of the
BPMD and other staff at the NAO – is now centralised within the Government. This could
diminish the independence of the BPMD given that the Ministry of the Interior, which will
become responsible for the recruitment of BPMD staff, is accountable to the Ministry of
Finance, the BPMD’s main governmental interlocutor. It could cause recruitment
difficulties for the BPMD due to creating a more lengthy recruitment process and being
insufficiently flexible for the institution’s needs (for example, “economist” is not a
profession listed in the recruitment categories). In general, the new process is inappropriate
for an institution as small and unique as BPMD.
43. The Auditor General strongly opposes these changes and has written a letter to the
Speaker of the Seimas explaining that “Such a system will hamper impartiality,
independence and autonomy of the National Audit Office performance and my capacity, as
the head of the supreme audit institution, to independently and autonomously select civil
servants for the National Audit Office”. It is interesting to note that other institutions have
also expressed concerns for their own functioning.
44. These changes are one of the reasons why a number of stakeholders have raised
concerns that the enabling legislation for the NAO – passed in 2002 – has become obsolete,
with insufficient provisions guaranteeing the independence and non-partisanship of the
Auditor General and the Director of the BPMD. A draft law amending the Law on the
National Audit Office aims to reinforce the independence of the institution and has been
under examination by Parliament for over a year. Among other things, the Auditor General
is seeking amendments to the Law on the National Audit Office to exclude the NAO and
the BPMD from centralised recruitment procedures and performance assessments.
45. The delay to the amendment of the Law on the National Audit Office poses risks
for both the NAO and the BPMD in terms of both institutions being under-resourced. The
significant concerns that the Auditor General has regarding the new recruitment procedures
for NAO and BPMD staff prevent him from replacing staff that have recently left the
institution. The BPMD’s first Director resigned in May 2019 to take on a position as Deputy
Governor of the Bank of Lithuania. Having key positions unfilled for extended periods
poses a significant risk to its ability to function effectively.
46. As a part of the NAO that reports to the Auditor General – both in a financial and
decision-making capacity – the BPMD is not functionally independent as compared to most
peer OECD IFIs. To date, the good working relationship between the NAO and the BPMD
has been underpinned by positive personal relationships between the Auditor General and
the first Director of the BPMD. However, there is no guarantee that this positive
relationship will continue with the advent of new leadership. Should the NAO and the
BPMD move to reinforce the BPMD’s independence, mechanisms should be put in place
to give the Director greater decision-making autonomy.
47. It was suggested by some stakeholders that the BPMD could evolve to be a separate
institution led by a small council of independent experts. A council could provide strategic
leadership, quality assurance, and serve as a public face to further engage stakeholders and
communicate the BPMD’s outputs. A key concern however, is the very small pool of
national independent experts available to sit on such a council. Similar concerns have
│ 25
existed in other small OECD countries looking to establish fiscal councils. However, in
practice these institutions have managed to find sufficient suitable candidates. One strategy
has been to recruit nationals living abroad or, in some cases, non-nationals (for example,
in Ireland, Portugal and Sweden) although in the case of Lithuania there are naturally
concerns about the ability to work in the local language. Box 2.1 outlines the cases of
Estonia and Latvia, which are both countries that are smaller than Lithuania but that have
an IFI led by a small council of independent experts.
Box 2.1. Examples of IFIs in small countries that are led by a council
Estonia
Estonia has a population of 1.3 million. When the Estonian Fiscal Council was first
established, there were some concerns about the ability to find suitable candidates for its
six member council. The statute of the Estonian Fiscal Council requires the central bank’s
Supervisory Board to nominate the Fiscal Council’s Chair, Vice-Chair and four members
for a period of office of five years at the proposal of the Governor of the central bank.
However, through looking for experts across academia, the private sector and the central
bank, on 14 May 2014 the Supervisory Board was able to appoint the first membership of
the Fiscal Council. In March 2019, the Supervisory Board of the central bank approved the
proposal of the Governor of the central bank that the same experts should remain in post
for the next five years. This decision was taken because the current council members work
very well together, and not because of a lack of alternative candidates.
Latvia
Latvia has a population of 1.95 million. When the Latvian Fiscal Discipline Council was
being established, the Ministry of Finance had concerns about being able to source experts
for its six-member Council. Council members are put forward by the Saeima (parliament),
the President of the Bank of Latvia and the Minister of Finance and have six year terms. In
order to boost the potential pool of candidates, some members of the council have been
sourced from outside Latvia. The council currently includes two foreign experts (one
Danish academic and the Deputy Governor of the Central Bank of Estonia) in addition to
four Latvian nationals. It is anticipated that future council members might be former staff
members of the Ministry of Finance, the Central Bank, commercial banks, the European
Commission or peer IFIs with an expertise in macroeconomic or fiscal issues.
Source: Authors, based on information provided by the Estonian Fiscal Council and Latvian Fiscal
Discipline Council.
2.3.2. Staffing
48. Fully staffed, the BPMD should have around ten staff members to enable it to
deliver its mandate of endorsing the official macroeconomic forecasts, assessing
compliance with fiscal rules, and budget analysis. At the time of this review it only has six
staff members, with four vacant positions, including vacancies in key leadership positions
(see Table 2.2). Of these, five staff are women. Staff have an educational background in
economics, econometrics and mathematics, and typically hold a master’s degrees. The
professional background of staff tends to be either public policy, statistics, or economics.
One staff member was hired straight out of university, one came from the Ministry of
Finance, two from Statistics Lithuania, one from a non-governmental organisation, and one
from the private sector. The average age is 34 years old.
26 │
49. The staffing levels of the BPMD are not set out in its enabling legislation. The
Director of the BPMD, with the AG’s approval, is responsible for choosing when to hire
and when to dismiss staff, however, under the new Law on Civil Service, recruitment
procedures (and other aspects) are now centralised within the Government limiting the
autonomy of the Auditor General to hire.
Table 2.2. BPMD staffing levels 2015-2019
Staff 2015 2016 2017 2018 2019
1. Director (civil
service)1 1 1 1 1 -
2. Senior Adviser (civil
service)2 1 1 1 1 1
3. Adviser (civil
service)3 1 1 1 1 -
4. Chief specialist4 1 1 1 1 1
5. Adviser (civil
service)5 - - 1 1 1
6. Chief specialist
(under labour contract)6 - 1 1 1 -
7. Senior specialist
(under labour contract)7 - - 1 1 -
8. Chief specialist (civil
service)8 - - - - 1
9. Chief specialist (civil
service)9 - - - - 1
10. Chief specialist
(civil service)10 - - - - 1
11. Senior specialist
(secretary, under labour
contract)11
- - - 1 -
Total 4 5 7 8 6
Notes: 1 the first Director left this position in May 2019 and has not been formally replaced. 2 This post holder
is currently on leave. 3 This position was temporarily abolished in February 2019 but may be reinstated when
the issues around the new recruitment process have been resolved.4 The post holder is currently Acting Director.
5 This position was established in autumn 2017, and has been occupied since 1 December 2017. 6 This position
became vacant in October 2018. 7 This position was established in summer 2017, occupied from September
2017 and became vacant in June 2018. 8 This position was established at the end of 2018. 9 This position was
also established at the end of 2018. 10 This position was occupied from April 2019. 11 This position was
established in 2017, but became vacant in May 2019.
Source: Authors, based on information provided by the BPMD.
50. A key issue for the BPMD has been high levels of staff turnover. The institution
struggles to attract and retain senior staff given a general shortage of economists and public
finance experts in Lithuania, low salary levels in the public sector9, and some restrictions
9 As compared to similar positions in the Bank of Lithuania or the private sector. BPMD salary
levels are in line with those of the Ministry of Finance.
│ 27
on hiring non-nationals.10 There are concerns that staffing issues may be exacerbated
further by the recent reforms to the Law on Civil Service that now centralises recruitment
within government for both the BPMD and the NAO.
51. In addition, there is limited potential for secondments between the NAO and the
BPMD given that there is only very limited complementarity between the skillset of the
audit office staff and the skillset needed in the IFI. The Bank of Lithuania would be a more
obvious choice for staff exchange or secondments, as has been done in other countries.
There are some positive signs however as it has been agreed that one economist from the
Bank will be posted in the BPMD for three weeks during the evaluation of the draft budget
for 2020.
Box 2.2. Central bank support for the Spanish IFI
The Bank of Spain was active in pushing for the establishment of an IFI. When the
Independent Authority for Fiscal Responsibility (AIReF) was established as Spain’s IFI in
2013, the Bank was also active in providing technical support during its set-up phase. It
seconded six staff to AIReF over its first two years, paid for by the Bank. Up until 2017,
the Bank still had one staff member seconded to AIReF. Thereafter, the Bank viewed that
AIReF was in a steady state and no longer needed its support. However, there is a still
ongoing dialogue and cooperation between the two institutions, including quarterly
technical meetings. AIReF’s success as an institution is valued by the Bank of Spain, who
find that the quality of macroeconomic and fiscal monitoring is improved by having
multiple independent voices.
Source: Von Trapp, L. et al. (2018).
52. The BPMD would be better able to attract and retain skilled staff if the Director had
full autonomy to hire staff and set their conditions of employment. This should include
giving the BPMD Director the ability to set more competitive salary levels for its staff, and
to hire experts from outside Lithuania. Box 2.2 provides examples of how several OECD
IFIs allow for non-nationals to serve as council or staff members, thus increasing the pool
of qualified candidates.
Box 2.3. Recruitment of non-nationals across OECD IFIs
A number of OECD IFIs allow for the recruitment of non-nationals as council or staff
members in order to increase the pool of qualified candidates. These are typically IFIs that
operate in small countries. For example, the Scottish Fiscal Commission was established
in 2014. Recognising that Scotland has a limited pool of economic and statistical analysts,
the IFI has recruited staff from the United Kingdom and across the European Union. At the
Irish Fiscal Advisory Council and the Swedish Fiscal Policy Council, members can be
non-nationals and both IFIs have experience of hiring foreign members. At the Portuguese
Public Finance Council two of the five Senior Board members are required to be non-
Portuguese citizens.
Source: Authors.
10 Non-nationals can be employed in the public sector on a contractual basis.
28 │
2.3.3. Advisory panel
53. In line with OECD Principle 9.1, in April 2016, the BPMD established an Advisory
Panel with the aim of strengthening its effectiveness and ensuring its analysis is in line with
good practice. The Advisory Panel was initially comprised of two members and a third
member joined in 2018. There is limited specialist expertise available inside Lithuania,
which means that the BPMD have had to look internationally to staff its advisory panel.
Currently the three members of the panel are all international experts, although one member
is based in Lithuania.11
54. Members of the BPMD’s Advisory Board are available for consultation
electronically and may meet once during the year. The BPMD should continue to ensure
that it has formal arrangements in place to pay the travel expenses of panel members in
relation to this annual meeting.
55. The Advisory Panel is relatively small in comparison to peer institutions, and given
the BPMD’s limited staff, it may be advisable to expand the Advisory Panel’s membership
to provide more targeted advice and peer review of the BPMD’s work. The BPMD should
therefore consider trying to supplement their advisory panel by approaching academics
with expertise on specific issues, and deepening collaboration with the central bank to
improve its access to the available pool of expertise, as similar-sized IFIs have done, such
as Slovakia.
2.4. Access to information
56. As independent institutions, IFIs require access to information from across the
public sector to ensure they are in the best possible position to deliver informed analysis
and opinion. Principle 6.1 of the OECD Principles states:
“This creates a special duty to guarantee in legislation – and if necessary to
reaffirm through protocols or memoranda of understanding – that the IFI has full
access to all relevant information in a timely manner, including methodology and
assumptions underlying the budget and other fiscal proposals.”
57. The BPMD has access to information provided for in its enabling legislation
(Article 9). The law sets out that it has the right to request and receive data from state and
municipal institutions as a necessary pre-requisite for the performance of its functions. It
also compels the Bank of Lithuania to submit its macroeconomic forecasts to the BPMD
each time they are updated, and at least twice a year. Of note, there are no restrictions or
privileges on information provided by the Government.
58. Access to information is also supported by MoUs signed between the BPMD and
government stakeholders, including the Ministry of Finance, the Ministry of Social
Security and Labour, the Bank of Lithuania, as well as with the municipalities of Vilnius,
Kaunas and Klaipeda. Figure 2.3 shows that instruments available to the BPMD (both
legislation and MoU) to secure access to information are the ones available to the largest
11 The Panel includes a former member of the Slovak Council for Budget Responsibility, a former
employee of the Hungarian Fiscal Council, and a non-national economist currently based in the Bank
of Lithuania.
│ 29
proportion of IFIs across OECD countries. A MoU helps to manage expectations on
processes for information requests, timeframes, steps to take when requests are not
complied with, and treatment of confidential data.
Figure 2.3. Arrangements through which access to information is secured across OECD IFIs
Note: The data includes 36 OECD IFIs, including three subnational IFIs in Australia (Victoria), Canada
(Ontario) and the United Kingdom (Scotland) and one supra-national IFI, the European Fiscal Board. The data
includes two IFIs for Austria, Finland, Greece, and Ireland. IFIs in non-OECD countries are excluded.
Source: (OECD, 2019).
59. The BPMD can directly approach government staff to request information. Should
the BPMD not be provided with the requested information, a three-step escalation process
could be activated: i) requests would be forwarded to the political level of the relevant
institution, ii) the BPMD would threaten to mention it in their report, iii) the Auditor
General would get involved.
60. In practice, the BPMD has never been threatened with limits on access to
information by the government, and has not had to utilise the escalation process. The
BPMD tends to be given access to relevant government information in a timely manner.
Unlike some of its peers, the BPMD does not track information requests, nor does it make
these requests public. It may wish to consider tracking this metric in the future.
61. In addition to the legal framework underpinning the BPMD’s access to information,
good personal relationships between the BPMD leadership and government staff have
played a key role in ensuring smooth access to information. This is especially relevant for
Statistics Lithuania, who have provided the BPMD with the information it has requested
despite the lack of a MoU between the two institutions. However, the BPMD should be
cautious about over-reliance on good personal relationships, and should ensure that MoUs
are in place and maintained to help ensure that access to information from all key actors is
secured in the longer-term.
62. Although the BPMD tends to receive responses to access to information requests,
recently issues have arisen around poor quality of responses and slow responses. For
example, in 2018, data on the draft budget for 2019 was submitted by the Ministry of
30 │
Finance to the BPMD later than usual. This unforeseen delay impacted the BPMD’s
internal organisation regarding the production of the opinion on the draft budget, as it had
to be released in time for deliberations in Parliament. In addition, in 2019 with the newly
introduced income tax reform, the information transmitted to the BPMD on budget
execution was incomplete, as it was missing data on social security. Some data was later
obtained on request.
63. These incidents signal that the MoU signed in 2015 with the Ministry of Finance
may benefit from an update so as to ensure that there are appropriate stipulations on
timescale and information being provided in open data format. Any update should also take
into account new requirements for information relating to reports that the BPMD has
recently started producing. The regular updating of MoUs is an essential task to ensure that
they remain fit for purpose (see Box 2.4 for the UK OBR’s approach).
Box 2.4. The UK OBR’s approach to regular updating its MoUs
The UK OBR does not have a specific policy on scheduled updates to its MoUs, but takes
care to update them in response to any new or special circumstances which merit changes
being made. For example, the OBR updated its MoU with HM Treasury, HM Revenue &
Customs and the Department of Work and Pensions in 2017 subsequent to expanded
responsibilities for the institution. The OBR has also created new MoUs with devolved
institutions, including the Scottish Fiscal Commission, in response to expanded
responsibilities in relation to devolved fiscal forecasts.
Source: Authors, based on information provided by the UK OBR.
2.5. Independence
64. Independence and non-partisanship refer to the ability of an IFI to undertake its
duties free from political pressure or influence. The extent to which independence is
fostered within an IFI is significantly influenced by the legislation that establishes and
governs the institution.
65. One of the main reasons that the BPMD was placed within the NAO is that it has a
long-standing reputation as a body that is independent from the government. In particular,
the Auditor General has leadership and operational independence that has served both the
NAO and the BPMD well in recent years. Despite being a young institution, stakeholders
generally regard the work of the BPMD as thoroughly independent and non-partisan.
66. Although the BPMD sits within a highly independent institution – and has benefited
from this – this position also compromises the independence and visibility of the IFI as its
own institution. Some of the ways in which this arrangement compromises the BPMD’s
independence are highlighted below:
Leadership independence: Although the BPMD has its own Director, the Auditor
General is legally the head of the IFI. The BPMD is often represented by the
Auditor General at parliamentary hearings or in the media.
Operational independence: The BPMD undertakes its own technical analysis and
writes its own reports. As the head of the NAO, the AG reviews and signs off on
the BPMD’s reports and they are released under the NAO logo. The Deputy AGs
may also be consulted for comment.
│ 31
Financial independence: The budget for the BPMD is part of the NAO budget and
may therefore be adjusted at the AG’s discretion.
67. Overall, it is observed that many key decisions relating to the BPMD are taken by
the Auditor General. While the Director of the BPMD and the Auditor General have
enjoyed positive relations, the first Director of the BPMD has recently left and the Auditor
General’s term is due to end in the next year. A different dynamic between future leaders
could potentially hamper the ability of the BPMD to function independently within the
NAO. As noted in the OECD’s 2018 Economic Survey of Lithuania, “the council remains
under the authority of the National Audit Office whose reputation is high, but tensions
could arise should the objectives of the two functions (NAO and IFI) diverge.”
68. A further risk is that the NAO faces challenges to its own independence through
the recent reforms of the Law on Civil Service, which means that all NAO and BPMD staff
will now be recruited centrally by the Government and be subject to centralised training
and performance assessments.
69. Taken together, the current institutional arrangements for the BPMD do not offer
sufficient guarantees of its ability to operate as a sustainable, autonomous and independent
institution into the future. Increased independence for the BPMD would require the BPMD
becoming a standalone independent institution rather than a functional unit with IFI tasks
inside another institution.
70. An arrangement that has worked well for many small OECD IFIs (see box 2.5), has
been to enter into a service level agreement with a larger institution. This allows the IFI to
focus their resources on delivering their mandate, while buying back office services (IT,
facilities management, and legal services etc.). The current institutional arrangement has
meant that the NAO has provided the BPMD with back office services and this arrangement
has worked smoothly, although there could be greater clarity around the cost of these
services, something a service level agreement would provide. One option, should the
BPMD become a standalone institution, would be for the BPMD and the NAO to build on
their current good relationship, by setting up a service level agreement that allows the
BPMD to continue to sit within its current offices and buy services from the NAO.
Ultimately this would imply changes to the BPMD’s legal framework and the NAO would
have to agree. Alternatively, should the NAO not be willing to enter into a service level
agreement with the BPMD, the BPMD could seek to enter into a service level agreement
with another independent institution such as the Bank of Lithuania.
Box 2.5. Examples of Service Level Agreements across OECD IFIs
Estonia: The Estonian Fiscal Council sits within the Central Bank in Estonia and it is meant to
provide all of the resources for the Council’s work. This includes the analytical staff, premises, IT
support, legal, translation services, etc. The relations between the Council and the Central Bank are
described in the Bank’s law and in more detail in the statutes of the Council. The Council sets out
its funding requirement and sends this to the Governor of the Central Bank for approval. The Central
Bank covers the expenses of the Council out of its own budget. The Bank can technically be
reimbursed by the Government for these expenses, but it has never exercised this right. Key to the
32 │
Council maintaining its independence and a separate identity within this set up is that the Chair and
vice-Chair are not Central Bank employees and the Council has its own webpage.
Ireland: The Irish Fiscal Advisory Council was set up on an interim basis in 2011. To get the
Council established and operating quickly in its interim form, support services and accommodation
were provided by the Economic and Social Research Institute (ESRI), an independent research
institute that is partly funded by government. These arrangements have continued following the
adoption of the Fiscal Responsibility Act, with the ESRI being reimbursed from the IFAC budget
for the services provided.
Scotland: The Scottish Fiscal Commission can choose where to be located and how to provide its
corporate services and IT. After consideration, the Commission decided that it would make use of
the Scottish Government’s HR, IT, procurement and internal audit services. The Scottish
Government also provides legal services and supports the procuring of external legal support if
advice cannot be provided by an internal lawyer. However, the Commission manage its
communications service entirely in house. The Commission is based in a building is owned by the
Scottish Government for which it has sole occupancy. The Commission pays an annual charge to
the Scottish Government for the services that it receives on a cost recovery basis.
Source: Authors.
2.6. Conclusions and recommendations
71. Fully staffed, the BPMD should have around ten staff members to enable it to
deliver its mandate of endorsing the official macroeconomic forecasts, assessing
compliance with fiscal rules, and budget analysis. Currently it has six staff members with
four vacant positions, including vacancies in key leadership positions. The institution
struggles to attract and retain skilled staff, given a general shortage of economists in
Lithuania, the low salary levels it is able to offer, and restrictions on hiring non-nationals.
Staffing issues are likely to be exacerbated by the recently enacted Law on Civil Service
which centralises future recruitment and performance assessments for the BPMD – and all
public sector institutions - within the government. By taking away the BPMD’s ability to
hire its own staff, this new arrangement compromises the BPMD’s independence and
further fragilises an institution that is already very tightly resourced. To align with the
OECD Principles and peer institutions, and to help overcome its staff shortages, the BPMD
should instead have full autonomy to hire staff and set their conditions of employment. It
should also be able to hire experts from outside Lithuania.
72. The budget for the BPMD is currently set by the Auditor General of the NAO.
While its budget has grown under the leadership of the current Auditor General, his term
is due to end in the next year. A number of stakeholders called for the BPMD to be able to
set its own budget, subject to approval by the Audit Committee at Parliament. At the very
least, it would be beneficial for the BPMD to have its own budget line within the
government’s annual budget document.
73. The BPMD has access to information set out in legislation and this is further
supported by MoUs between the institution and government stakeholders. In general, the
BPMD receives the information it requests, although in some instances it is not received in
open data format, and is not received in a timely fashion. The BPMD should periodically
update its MoU to ensure that these issues are addressed.
74. The IFI function was set up within the NAO due to its long-standing reputation as
a body that is independent from the government. While this arrangement has served the
BPMD well in its early years, it has arguably compromised the independence and the
│ 33
visibility of the BPMD. The current institutional arrangements mean that the Auditor
General represents the BPMD publicly and signs its reports and that the BPMD’s reports
are released under the logo of the NAO. In addition, the Auditor General takes a number
of key decisions relating to the BPMD, including setting its funding. The current
institutional arrangements for the BPMD do not offer sufficient guarantees of its ability to
operate as a sustainable, autonomous and independent institution into the future. Increased
independence for the BPMD would require the BPMD becoming a standalone independent
institution rather than a functional unit with IFI tasks inside another institution. One option,
should the BPMD become a standalone institution, would be for the BPMD and the NAO
to build on their current good relationship, by setting up a service level agreement that
allows the BPMD to continue to sit within its current offices and buy services from the
NAO. Ultimately this would imply changes to the BPMD’s legal framework and the NAO
would have to agree. Alternatively, should the NAO not be willing to enter into a service
level agreement with the BPMD, the BPMD could seek to enter into a service level
agreement with another independent institution such as the Bank of Lithuania.
34 │
3. Chapter 3: Outputs and methodologies
3.1. Introduction
75. This chapter highlights the outputs of the BPMD and the methodologies used to
deliver them. It includes a technical assessment of the BPMD methodologies which
benchmarks them against those used by peer institutions, and also highlights key issues for
BPMD reports, including; near-term focus versus longer-term, treatment of uncertainty,
comprehensiveness and clarity of reporting, quality control process, and transparency.
76. Analysis indicates that the BPMD’s outputs are highly regarded and well-
presented, although key points could be highlighted in a more structured way. The BPMD’s
methods are found to be appropriate and align with those of peer institutions. To further
bolster its credibility and transparency, the BPMD could publish its macroeconomic
forecast and communicate the results of its own methodologies.
3.2. Outputs of the BPMD
77. As outlined in Chapter 1, the BPMD endorses the macroeconomic forecasts used
for fiscal planning; assesses budgetary forecasts, assesses ex ante and ex post fiscal rules,
assesses draft annual budgets, and monitors fiscal policy and budgetary execution. It is
legally mandated to submit the following five opinions to Parliament each year:
1. Opinion on an endorsement of macroeconomic scenario (in spring and autumn).
2. Opinion on compliance with fiscal discipline rules in the draft budget law (ex ante).
3. Opinion on compliance with fiscal discipline rules in the previous year budget (ex
post).
4. Opinion on the correspondence with exceptional circumstances.
5. Opinion on the compliance of the structural adjustment and guidelines on measures
to fulfil these targets with the requirements for the achievement of the medium-
term objective.
78. The BPMD has a role to give its quarterly opinion on the situation of the economy.
The BPMD is also mandated to assume a major role in case of exceptional circumstances.
These are supplementary publications in case of unusual fiscal events. In case of severe
deviation from fiscal targets, the government must provide a plan of concrete measures.
This plan would be assessed by the BPMD. They would give an opinion on whether or not
these measures are sufficient. Until now, there has been no unusual fiscal event and the
BPMD has not had to issue its opinion in this regard.
79. BPMD analysis covers the general government sector. The BPMD began
monitoring compliance of municipalities with fiscal rules on 1 January 2016 for
municipalities where planned appropriations did not exceed 0.3 % of GDP and on 1 January
2018 for municipalities where planned appropriations exceeded 0.3 % of GDP.
80. In order to go beyond the short-term perspective and encompass medium and long-
term assessments of fiscal forecasts and sustainability, the BPMD has recently expanded
its work programme to include additional outputs. In 2016 and 2017, the BPMD took the
initiative to publish an assessment of long-term fiscal sustainability. In 2018 BPMD
│ 35
published an assessment of the Stability Programme; this will be an annual report coming
out in May. In response to emerging imbalances in the economy, the BPMD has also started
to produce a fiscal risk scoreboard. These publications assist the BPMD in monitoring the
fiscal framework.
81. The BPMD’s work plan is set out in the annual NAO work programme. Like most
of its peer IFIs, the BPMD has the autonomy to undertake analysis at its own initiative.
Although it is not legally prohibited from doing so, the BPMD refrains from providing
normative advice or specific recommendations on policy issues, also in line with the
majority of OECD IFIs.
82. The BPMD’s publications are relatively evenly distributed throughout the budget
cycle (which aligns with the calendar year), as illustrated in Figure 3.1. In spring, the
BPMD produces an opinion on the endorsement of the macroeconomic scenario as well as
a report assessing the Stability Programme. In summer, three reports are produced: an ex
post opinion on the compliance of the previous year budget with fiscal discipline rules, a
report on the assessment of long-term sustainability, and a report on the compliance of
municipalities with fiscal discipline rules. In autumn, the BPMD publishes an opinion on
an endorsement of macroeconomic scenario as well as ex ante opinion on the compliance
of the draft budget law with fiscal discipline rules.
Figure 3.1. BPMD reports throughout the year
Source: Authors.
83. Although the BPMD currently does not have a role in policy costing nor in costing
election platforms, there is some demand for it to develop policy costing capacities. As this
is a resource intensive function, this could be envisaged over the long term should more
36 │
resources become available. For now, the BPMD should continue investing in
strengthening its capacity to deliver its existing mandate and limit itself to “test of
reasonableness” assessments of government policy costings for initiatives with significant
impact on the public finances or the economy. The BPMD could also look for opportunities
to leverage cooperation with others around policy costings. For example, the new
government’s initiative to found the Government's Strategic Analysis Center which should
be operational in 2021.
3.3. Technical assessment of BPMD methodologies
84. This technical assessment looks at the approaches used by the BPMD to carry out
the tasks in its mandate, and considers their scientific and methodological appropriateness.
3.3.1. Approach
85. There are a number of areas where the BPMD uses technical tools to carry out its
mandated functions. These technical tasks include the:
Development of benchmark macroeconomic forecasts
Estimation of the output gap
Surveillance of the general government balance and debt sustainability
Assessment of compliance with budgetary rules
Production of long-term fiscal forecasts
86. In recent years, the BPMD has made changes to its approach to these tasks and a
number of methodologies were applied for the first time in 2018 and 2019.
87. Choosing a model involves trade-offs that are not only difficult to balance, but often
in opposition to one another. Analysts at IFIs must make difficult decisions to prioritise
certain criteria over others when choosing an appropriate tool for the job. For this reason,
it is difficult to offer a final pronouncement on whether a tool is the most appropriate for
the analysis. Instead, the OECD has considered the results of six assessment criteria and
offered a subjective opinion on whether each methodology may be considered suitable for
delivering the BPMD’s mandate. The assessment also considers whether they meet
standards practiced by other IFIs. Table 3.1 summarises the six assessment criteria used.
Table 3.1. Assessment criteria
Theoretical
justification
Does the academic literature support this model, or set of tools, for this analysis?
Accuracy Is the model likely to give accurate results for this type of analysis?
Communication Can the methodology and results be easily and convincingly communicated to
parliamentarians and the public?
Transparency Are assumptions clear? Does the model use free and open data? Has it been published
in a manner that lets the public recreate its results?
│ 37
Resources and
continuity
Does the model require many analysts with specialized skill sets to maintain?
International use Does it compare favourably to approaches used at other research institutions and those
recommended by authoritative reference manuals?
3.3.2. Results of the technical assessment
88. The technical assessment concludes that the methodological approaches used by
the BPMD to carry out its mandated functions are appropriate for its analysis, though
significant improvements could be made in transparency and communication. Each of the
BPMD’s approaches has a theoretical justification in the economic and forecasting
literature and is consistent with those of peer IFIs.
Table 3.2. Assessment of BPMD’s methodological approaches
Model Approach Assessment
Econometric models for the
economic outlook
Multivariate regression models based on
correlation analysis Appropriate
GDP models Vector autoregression models Appropriate
Inflation model Dynamic model averaging short-term
forecasting model Appropriate
Potential GDP and output gap
projection
Semi-structural multivariate filter,
production function approach Appropriate
Surveillance of Lithuanian
Economic Development (SLED)
Medium sized structural quarterly
macro-econometric model, neoclassical
and (new) Keynesian synthesis
represented in an error-correction form
Appropriate
Debt sustainability analysis IMF approach, baseline scenario,
sensitivity tests Appropriate
Health care expenditure model Macro-simulation model Appropriate
Education expenditure model Macro-simulation model Appropriate
Surveillance of general
government balance
Link of public cash data to ESA2010
accrual methodology Appropriate
Source: Authors.
89. On theoretical justification, the models used by the BPMD are based on
academically accepted methodologies. BPMD’s supply-side estimates come from a labour-
augmented Cobb-Douglas production function with constant returns to scale. The BPMD
also apply a number of Vector Autoregressive (VAR) models to provide eight-quarter
forecasts of GDP. While VARs are not based on a specific economic theory, they are time
series models that have become popular among forecasters for short-term forecasts. The
Surveillance of Lithuanian Economic Development (SLED) model is an internally
developed standard macro model that combines neo-classical long-term optimisation
behaviour with short-term Keynesian dynamics through an error correction process.12
90. On accuracy, analysis conducted by an IFI aims to create a framework for debate
and to assess the reasonableness of the government’s forecasts and estimates. In this
context, the precision of forecast numbers is not as important as the internal consistency of
12 The staff member responsible for developing this model has since left the BPMD.
38 │
a forecast and the reasonableness of the narrative that explains the forecast. Despite this,
most IFIs monitor the degree of accuracy of their forecasts over time and compare the
results with forecasts of other such institutions, and with alternative models and the BPMD
should do the same. The OECD did not undertake an independent assessment of the
accuracy of BPMD’s projections and forecasts and the performance of its models because
to examine the accuracy of these, one requires data on estimates and outturns for a longer
period than is currently available. Some of the methodologies have only recently been
applied for the first time, including the GDP VAR models in 2018 and the econometric
models for the economic outlook in 2019.
91. The methodologies and models that the BPMD employs are consistent with
common practice. Thus, the BPMD’s models are appropriate forecasting tools and if they
are supplemented by sound judgement, they can provide reasonably accurate forecasts.
Although there are various steps under transparency and communication that should be
addressed first, it would be helpful if subsequent to taking those steps the BPMD could
provide a more regular analysis of its forecasting accuracy, including in comparison with
others. A first step towards this was taken when the BPMD published analysis of the
forecasting accuracy of potential GDP by the BPMD, European Commission and Ministry
of Finance in 2018.13
92. On transparency, in principle, allowing external stakeholders access to details
behind methodological approaches can help improve the performance of the models.
Experts could suggest improvements, find coding errors, and identify other issues that the
analysts who maintain and use the models may have overlooked. There is significant scope
for the BPMD to improve the transparency of its methodological approaches. First and
foremost, the BPMD could publish and communicate its results. The BPMD publishes its
endorsement decisions and an assessment of the official forecasts but does not publish its
own macroeconomic forecasts that inform that decision and assessment. In fact, it is not
clear from the published reports the extent to which the BPMD’s own technical analysis
informs the endorsement decision. For example, the fan charts on which the numerical
approach to the endorsement decision is apparently based are centred around the forecasts
of the Bank of Lithuania. The publication of the results does not have to be done at the time
of the endorsement decision but could be done with a delay such as in a subsequent
assessment report.
93. The BPMD could also improve its transparency by publishing details on its
methodologies in staff working papers and other types of publications. Steps in this
direction have already been taken. As a past example, in its 2015 “Endorsement of the
Economic Development Scenario” the BPMD provided some information on
methodologies used for the endorsement of economic development scenario, what the
BPMD considered as the most likely scenario and how fan charts were developed.14 The
BPMD is currently developing a paper on the scenario methodology for the opinion on the
endorsement of economic development. As the BPMD is publicly funded it could be argued
that transparency should go even further with perhaps the code and data used also made
public. Transparency is valuable on its own merits, but can also provide other benefits, such
as error checking and collaborative model improvement, that lead to better outputs. There
13 See Box A, “Is the economy growing warmer or colder”, in the BPMD’s Opinion on the
Endorsement of Economic Development Scenario (2018). Link to the report:
http://www.ifi.lt/isvada.aspx?id=10223
14 See Box A and Box B in report: http://ifi.lt/isvados.aspx
│ 39
are some risks to increased transparency. For example, non-expert users may not fully
appreciate the internal intricacies of a model that may lead them to generate inaccurate or
misleading results. There is also the resource cost of producing documentation for external
use. However, the limited transparency at present means that such risks and costs are likely
to be outweighed by the benefits of increased transparency that would help to increase the
BPMD’s credibility.
94. On communication, the BPMD does effectively communicate the results of the
endorsement decision but does not communicate the results of its own methodologies that
it is assumed inform that decision. The BPMD should communicate the results of its own
methodologies. The need for communication and the fact that parliamentarians are one of
the key stakeholders of any IFI means that it is important to communicate the results of its
reports in terms that parliamentarians can easily understand and that provide value. As
such, a balance may have to be struck between the complexity of the models and the ability
to easily explain the results. At present, the BPMD uses only a limited number of standard
models with results that should be relatively easy to communicate. To enhance the status
of the BPMD it would be beneficial if the results were branded or published under the name
of the BPMD rather than the NAO.
95. On resources and business continuity, the fact that the BPMD, like most IFIs, is
a relatively small organisation that could experience a high turnover of employees means
that in selecting methodological approaches, the BPMD has to take into account the
resources required to maintain and use the models, as well as the time needed to train new
employees. If the models are complex and difficult to use, the institution may encounter
disruption in its work when some employees leave. Internal consistency and overall
evaluation of the modelling strategies are also important. At present, the BPMD has the
right balance between the complexity of its models and the capacity to achieve business
continuity. A small number of economists should be able to maintain and run all the models
presently used by the BPMD. If resources allow, the BPMD may wish to invest in
strengthening its macroeconomic analysis. As noted in Chapter 2, a secondment from the
National Bank of Lithuania could help support ongoing development of the BPMD’s
macroeconomic function.
96. On international use, the BPMD’s approach to short and medium-term economic
outlook and fiscal outlook is similar to the approach used by other IFIs, including the Irish
Fiscal Advisory Council. Some, such as Spain’s AIReF, use more complex statistical
models that are more difficult to maintain and operate, and that are unlikely to be
appropriate for a smaller IFI such as the BPMD.
97. The BPMD uses a fairly standard approach to medium-term economic forecasting
though some elements of the approach have only recently been adopted. The BPMD’s
approach to debt sustainability analysis follows the approach set out by the IMF.
Forecasting government spending does not require complex models. In most cases,
institutional arrangements, demographic factors and government policies determine the
future path of spending. The BPMD’s approach to long-term forecasts of government
spending in health and education is in line with methodologies used by other IFIs.
Compliance with fiscal rules is assessed using a spreadsheet approach incorporating
mathematical and logical formulas as appropriate.
40 │
3.4. Key issues for BPMD reports
98. The publication of reports containing analysis and opinion is the main instrument
used by the BPMD to deliver its mandate. This section assesses key aspects of the BPMD’s
reports, including their near-term versus long term focus, the treatment of uncertainty, and
their comprehensiveness, clarity and transparency. It also provides an assessment of key
BPMD reports relative to similar publications by peer institutions across the OECD.
3.4.1. Near-term focus versus longer-term estimates
99. The majority of the BPMD’s reports are focussed on near-term analysis. That
approach is consistent with its mandate to assess compliance against the Government’s
fiscal rules using the 3-year ahead economic forecasts produced by the Ministry of Finance.
It is also a practical decision given the resources available and the limited time available to
produce assessments of the government’s economic forecasts.
100. The BPMD scrutinises the short term macro-fiscal forecasts of government ex ante
and ex post, and usually provides alternative forecasts based on current policies for the
balance of the general government. As such, both ex ante and ex post assessments are
always provided for macro-fiscal forecasts. So far, the official forecasts have always been
endorsed by the BPMD. However, the Ministry of Finance publishes the economic
development scenario without information on the output gap (which is published up to 5
working days later as specified in legislation), making the endorsement decision for the
BPMD more complicated. The usefulness of the BPMD’s output gap analysis could be
improved if the Government published the required information alongside the March and
September forecasts.
101. The structure of the reports published by the BPMD reflects its specific mandate.
For the current year and the next two years of the forecast the BPMD are required to endorse
(or otherwise) the key fiscal determinants of the forecast (consumption, wages,
employment) as well as the overall (real and nominal) GDP path. For the fourth year, the
endorsement decision relates only to the projection of potential GDP growth in that year.
However, the BPMD functions have evolved over time to cover not only short-term but
also medium-term assessment of fiscal forecasts and long-term assessment of fiscal
sustainability.
102. In 2018, the BPMD began producing an assessment of the Stability Programme,
which now gives it an opportunity to comment on the public finances more widely than the
constraints of the mandate assessment. At the moment, much of the discussion in the report
is still focussed on the near-term outlook and evaluation of previous years’ outturn, which
is valuable, but a different balance could be struck in future reports, particularly given the
BPMD’s own investment in producing (as yet unpublished) internal medium term fiscal
forecasts.
103. The focus on the near term is perhaps understandable given the BPMD’s mandate
and the tendency of the media to focus on shorter time horizons. To its credit, the BPMD
have recognised the need to broaden its assessment of the sustainability of the public
finances over the longer term. Starting in 2016, the BPMD, at their own initiative, published
a long-term report looking at the sustainability of the public finances. Its 2017 long-term
report examined the impact of changes in the pension system introduced in 2016. That
report matches the content of many other peer IFIs, uses the OECD methodology to develop
a baseline scenario, and performs sensitivity analysis of specified changes in GDP growth,
│ 41
net migration and the interest rate. The BPMD also plans to look further into the
sustainability of the pensions system if resources allow.
3.4.2. Treatment of uncertainty
104. Projections of macroeconomic activity and the public finances are inherently
uncertain. Constantly changing dynamics in domestic and worldwide markets, as well as
government’s responses to a country’s needs, can significantly affect the magnitude and
even the direction of recent economic and budgetary trends. As a result, any “point
estimate” of GDP growth or the budget deficit is subject to considerable uncertainty and to
the reality that the actual results will deviate noticeably from even the best, unbiased
estimate.
105. In line with other IFIs, the BPMD highlights and quantifies this uncertainty by
adopting the commonly used practice of including probability based “fan charts” and text
discussing the uncertainty of projections in its key reports. But the BPMD is unusual
amongst IFI’s in the number of fan charts it publishes. The reports on the economic
development scenarios include fan charts for each of the components of the forecast they
are required to endorse, namely: real GDP, GDP deflator,15 consumption, employment and
wages. And the Assessment of the Stability Programme report includes fan charts for the
fiscal outlook, namely: the budget balance, structural balance and debt.
106. The fans are drawn to indicate 40, 60, and 80 per cent probability bands, which help
to form the basis of the endorseable range, and give a clear visual impression of the range
of uncertainty around the central forecasts. The bands are constructed from historical
forecast errors, excluding the financial crisis years which are judged to be an exceptional
period. Examples of the real GDP and budget balance fan charts from the most recent
respective reports are show in Figure 3.2.
15 The BPMD has decided to change GDP deflator to nominal GDP and from 2019 autumn will
endorse these indicators: real GDP, nominal GDP, consumption, employment and wages.
42 │
Figure 3.2. BPMD use of fan charts – Real GDP
Source: BPMD 2019.
Figure 3.3. BPMD use of fan charts – General Government budget balance
Source: BPMD 2019.
107. Given the comprehensive use of fan charts, which are clearly presented and
discussed in the reports, there is scope for greater use of the implied probabilities in the
│ 43
summary assessments to provide more context to the binary “endorse/not endorse”
decisions. This would be similar to the way in which Spain’s AIReF uses ranges, deeming
compliance with fiscal targets to be “likely”, “feasible”, “unlikely” or “very unlikely”.
108. The BPMD also compares the government’s forecast to the limited number of
forecasts made by other organisations16, taking into account the full set of forecast
components subject to endorsement.
109. Overall, the BPMD’s extensive use of fan charts and forecast comparisons are
helpful. That analysis provides useful context for their public messaging which could be
more prominent in report summaries. If resources allow, the BPMD could also extend their
treatment of uncertainty to cover additional sensitivity analysis to key parameters.
Historical revisions of the output gap are already used to demonstrate the degree of
uncertainty around estimates of the structural balance and this approach could be applied
more widely.
3.4.3. Comprehensiveness and clarity of reporting
110. The BPMD’s regular publications tend to be comprehensive and well presented,
giving the full picture of developments in the economy and public finances. There has also
been clear progression and improvement over time in the layout, structure and use of
graphics across BPMD publications. The most recent publications are very effective at
presenting analytical material in detail, accompanied by numerous charts and tables (the
underlying data for which are clear, accessible and in a user-friendly format on their
website).
111. Given the quality of the detailed presentation in the reports, the summary
documents could be improved by highlighting key points in a more structured way. These
currently consist of a list of bullets summarising key aspects of the report, meaning that the
key conclusions on the fiscal outlook can be lost among the sequence of bullets. The
inclusion of a single summary chart capturing the key conclusion of the report, such as a
table showing compliance with fiscal rules, would also help.
112. In general, the BPMD’s reports are clearly written, although there is an occasional
tendency to lapse into jargon. In particular, the ‘Box’ sections - which are used to set out
aspects such as details of methodological approaches - can include equations and technical
details, and more time could be spent explaining terms to the non-expert reader. The
opening of each report is typically also rather formal and the citation of the legal
underpinning for each report does not help to draw the reader in.
113. With the limited resources available, the BPMD have sensibly focused on
developing a few high impact graphics, the best example of which is the heatmap, shown
in Figure 3.4, which has been well-received by stakeholders. The summary table of
compliance with the fiscal rules was also singled out for praise by the media as an effective
communication tool.
16 Including the Lithuanian Central Bank, the European Commission, the OECD and private banks
such as Swedbank and SEB.
44 │
Figure 3.4. BPMD’s “heatmap” of the Lithuanian economy
Notes: Cells’ colors by standardized values of indicator
Source: BPMD 2019, http://www.ifi.lt/isvada.aspx?id=10286
3.4.4. Quality control process
114. The perceived quality of an IFI’s output - particularly its core publications - is
critical to its public credibility. A consistently high-quality product creates the platform for
the institution to provide effective independent scrutiny of public finances, putting it in a
position where it might credibly disagree with the Government on the economic and fiscal
outlook.
115. The BPMD has grown in size from a unit of three people, to a department of six.
The staff, while well-qualified, are typically hired at a relatively early stage in their career,
so do not have many years of experience. As mentioned in Chapter 2, high turnover has
been an issue, particularly of more experienced staff, with the new Law on Civil Service
now also hindering recruitment.
116. In these circumstance, the senior management of the BPMD has done an excellent
job of matching their output to their limited resources, steadily developing the depth and
breadth of reports as they build their institutional expertise, and carefully drawing on
resources like the Advisory panel when appropriate. The number of legally mandated
reports means that their production inevitably consumes the majority of the staff’s time,
and leaves less space for the BPMD to develop their own analytical tools. That said, the
BPMD have successfully prioritised work to produce its own methods and have published
working papers setting out their approach.
3.4.5. Transparency
117. The BPMD’s reports are published and easily located on its well-structured public
website. A small selection of report summaries is also available in English. The BPMD
seeks to be transparent on its method for endorsing the macroeconomic scenario. In other
areas, it acts as transparently as possible in the resources available and aims to publish more
detailed methodology papers in the future. There is also a rich amount of detailed outturn
and forecast data available on the website, presented in well-designed graphs and tables.
118. The BPMD has recently developed its own internal forecast to provide an additional
benchmark to establish the endorseable ranges for its projections. Once the BPMD has
sufficient confidence in its methods and processes for producing that forecast,
│ 45
consideration should be given to publishing it, in line with good practice among peer IFIs,
such as the Irish Fiscal Advisory Council.
119. Another key aspect of transparency is the BPMD’s relationship with the media.
Press releases accompany each of the BPMD’s reports, and also its wider activities and
parliamentary interactions. The BPMD did hold press conferences about its work in earlier
years, although these were discontinued. More generally, however, the BPMD is pro-active
in its approach to media communications, following-up with journalists that are writing
stories about the public finances to explain its work. However, as highlighted in Chapters
1 and 2, a lack of clarity over the BPMD’s status in relation to the NAO and over who leads
the institution complicates media reporting and reduces public recognition of the BPMD as
an independent institution and its impact.
3.4.6. Assessment of key outputs relative to peers
120. Like a number of EU IFIs, the BPMD has only been in operation for a little over 4
years, so it is still early to make a full assessment of its published work in comparison to
those peer IFIs that have been established for longer. Nonetheless, its published work
compares well with the output of similar sized IFIs in the OECD. The BPMD’s extensive
use of fan charts, and the continuous improvement in the structure and layout of its reports,
are particular strengths. Table 3.3 provides a summary evaluation of some key BPMD
reports relative to similar reports published by peer institutions across the OECD.
46 │
Table 3.3. Assessment of key outputs relative to peers
Report type Macroeconomic forecast Draft budget Stability program update
How well does the
report fulfil the
legal mandate?
The BPMD complies with its mandate to
review and endorse the Government’s
economic forecasts in the spring and
autumn each year.
The BPMD assesses compliance
against fiscal rules and compares
government forecasts of key fiscal
indicators against its own estimates.
The BPMD has extended its mandate to
evaluate the Stability Programme update
as it forms the basis for preparation of
the Draft Budget, and an output on this is
common across other EU IFIs.
How does the
content and
methodology
compare to
international
standards?
Report includes a clear summary of the
forecasts (although limited qualitative
evaluation), and good tables and charts
with relevant international comparisons.
The analysis and discussion of
budget trends is relatively high
level, with lots of detailed tables at
the end of the report. The latest
reports show very marked
improvements from three years ago.
The report provides an independent
evaluation of the forecast for the
(structural) budget balance, debt and
pro/counter-cyclical stance of fiscal
policy. The newly introduced reports are
somewhat briefer and less clearly
presented than more established reports.
How does the
content and
methodology
compare to those
of peer IFIs?
The content and methodology compares
well to those used by similar sized peer
IFIs, but is not as extensive as larger
peers. The BPMD does not yet publish
its own economic forecasts as many of
its peers, such as IFAC, do.
The BPMD analysis compares
favourably with many similar-sized
peers. The inclusion of the summary
fiscal risks indicator graphic and
discussion could be adopted by
other peer IFIs.
Good summary and explanation of
differences in revenue and expenditure
trends relative to forecasts, but key
conclusions on headline fiscal aggregates
could be more prominently presented, as
is done by peers such as AIReF.
│ 47
3.5. Conclusions and recommendations
121. The BPMD’s analysis is regarded as rigorous, independent and non-partisan. A
technical assessment of its methodologies found that the methodological approaches used
by the BPMD to carry out its mandated functions are appropriate for its analysis. However,
improvements could be made in transparency and communication. Specifically, the BPMD
could publish and communicate its own macroeconomic forecast, since this helps inform
its assessment endorsement of the government forecast. In addition, the BPMD could
publish more detailed methodological papers and communicate the results of its own
methodologies. This would serve to bolster the credibility of its work. In line with good
practice, the BPMD should also assess and publish its forecasting record over time and
against other institutions.
122. The BPMD employs comprehensive use of fan charts to communicate uncertainty.
If resources allow, the BPMD could also extend their treatment of uncertainty to cover
additional sensitivity analysis to key parameters. There is also scope for greater use of the
implied probabilities in the summary assessments to provide more context to the binary
“endorse/not endorse” decisions.
123. BPMD publications are well written, and contain useful graphics. There have been
notable improvements in the structure of key outputs in recent years. Going forward,
summary documents could be further improved by highlighting key points in a more
structured way. The inclusion of a single summary chart capturing the key conclusion of
the report, such as a table showing compliance with fiscal rules, would also help.
124. The BPMD is mandated to publish five reports throughout the year. In addition to
these mandated outputs, the BPMD has also recently expanded its mandate to include
additional outputs that go beyond the short-term perspective and encompass medium and
long-term assessments of fiscal forecasts and sustainability. These reports have been well-
received by stakeholders. However, given limited resources, the BPMD should exert
caution in committing to further outputs outside of its mandated tasks.
48 │
4. Chapter 4: Impact
4.1. Introduction
125. Like many of its peers, the BPMD is still a young institution and some elements of
its work programme are very new. As such, any assessment of its impact is necessarily
limited. Nevertheless, stakeholders reported that the BPMD has helped bring about fiscal
transparency gains for Lithuania and generated increased parliamentary and public debate
on fiscal issues. The BPMD’s decision to undertake self-initiated work on longer-term
sustainability was particularly appreciated by stakeholders.
126. While generally positive in their assessment, stakeholders also noted that the
influence of the BPMD may be mitigated by certain factors, such as the very technical
nature of BPMD’s work which is unlikely to appeal to a broad audience, the lack of a rich
media environment, and stakeholders being unable to distinguish between the work of the
BPMD and the NAO. Media engagement remains an area for improvement.
4.2. Influence on the public debate
4.2.1. Media Coverage
127. OECD Principle 8.1 states that IFIs should develop effective communication
channels from the outset, especially with the media. This assists in fostering informed
constituencies that may then exercise timely pressure on the government to behave
transparently and responsibly in fiscal matters.
128. The BPMD is continuing to develop its communications strategy. Currently, the
BPMD does not have a staff member devoted to communications. This is unsurprising
given the small staff contingent but it may be worth investing in media training for staff
with a focus on improving the BPMD’s reach and impact. Journalists can, and do, contact
BPMD leadership about its work directly. They can also go through the Communications
Unit of the NAO, which may contribute to the confusion between the BPMD and the NAO.
129. In terms of the media, the BPMD’s outreach is largely confined to publishing press
releases on the day of the publication of a report and holding background briefings with
relevant journalists as needed. At times, the AG and the BPMD Director have held
interviews on television and radio, as well as with the main business newspaper Verslo
Žinios and they remain open to doing so in future. Again, when the BPMD is represented
by the AG, it may contribute to stakeholders’ failure to separate whether the NAO or the
BPMD is speaking.
130. Although the BPMD held press conferences in the past (in 2015 and 2016 and
attended by around a dozen journalists), this practice has been discontinued. The BPMD
may wish to reinstate press conferences as analysis of media mentions shows that
significant spikes in coverage were achieved around the press conferences for the release
of the BPMD’s opinions on the draft budget.
131. Journalists with an interest in the BPMD are mainly found in specialised economics
and business media which is an important, if very small, constituency. This group of
stakeholders report that the BPMD has helped them to find and better understand fiscal
data. The work of the BPMD has contributed to richer coverage of issues in the public
│ 49
finances, such as the debates on Lithuania’s surplus and long term sustainability planning.
They also praise BPMD graphics which are regularly picked up in their articles.
132. Overall, online media coverage of the BPMD’s work is significantly higher than
that of print, radio, or television. This is likely partly a reflection of the current media
environment. In line with global trends, the popularity of print media in Lithuania is on the
wane, with the number of Lithuanian print newspapers sharply decreasing in recent years
and some former print titles relocating online.
133. Online coverage may be higher than other media but it has also been declining,
contributing to the significant fall in total media mentions across all different forms of
media around key reports. For example, total media mentions for the report which
consistently receives the highest coverage – the opinion on the draft budget – dropped from
396 in 2015 to 34 in 2018 (see figure 4.2).
Figure 4.1. BPMD media coverage and report publications 2015-2018
Note: Data includes national, regional and specialised press, radio, television and digital press coverage.
Source: Authors, based on information provided by the BPMD.
0
50
100
150
200
250
300
350
400
BP
MD
rep
ort
pu
bli
shed
Nu
mb
er o
f m
edia
men
tio
ns
BPMD report published Media mentions
Yes
No
50 │
Figure 4.2. BPMD media mentions on Opinion on Draft Budget 2015-2018
Source: Authors, based on information provided by the BPMD.
4.2.2. Web traffic and social media
134. The BPMD’s website is a key communication tool17. All of its opinions and reports
are published on the website. The BPMD always publishes material alongside its reports
for non-technical stakeholders, such as infographics or short summaries of its key messages
and stakeholders praise this user-friendly content.
135. As part of its effort to strengthen its brand, the BPMD set up its own separate
website in 2016, but it also still maintains its own pages within the NAO website. At this
stage there are no doubt efficiencies to be gained by having the NAO website link directly
to the separate BPMD website rather than maintaining two separate versions. Web analytics
must now track visits to both websites. Although there is not a long period for comparison,
the number of visitors to the separate BPMD website has grown rapidly and data from the
first quarter of 2019 shows the BPMD’s standalone website as having more visits than the
BPMD site within the NAO website for the first time.
17 See, www.ifi.lt
0
50
100
150
200
250
300
350
400
2015 2016 2017 2018
Me
nti
on
s
Media type
print TV radio online
│ 51
Figure 4.3. Visits to BPMD Websites
Source: Authors, based on information on page visits provided by the BPMD.
Figure 4.4. BPMD and NAO web sessions and BPMD reports released 2016-2019
Source: Authors, based on information provided by the BPMD.
136. The BPMD does not have a separate social media presence which somewhat limits
its ability to track its effectiveness on social media. Nevertheless the BPMD noted that it
finds social media to be more effective in disseminating messages than traditional media
0
5000
10000
15000
20000
25000
30000
2018 Jan-March 2019
BPMD site within NAO site BPMD standalone site
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
BPMD report published BPMD site within NAO site BPMD standalone site
52 │
and that social media is used in part to drive visitors to the BPMD website. The NAO,
which may also post about the BPMD, has a social media presence on Facebook (2,240
followers), LinkedIn (194 followers) and Twitter (220 followers).18 This is in contrast to
many peer IFI institutions, even those with conservative social media strategies, which have
successfully used Twitter to communicate key messages augmented by “killer” charts,
animations or infographics.
137. An effective and efficient communications strategy relies on frequent evaluations
of the types of content that garner the most engagement. For example, the OBR uses a range
of free yet powerful tools to track how well the OBR’s communications and reports have
performed. These include: analytics; Google analytics; Twitter analytics; downloads; direct
feedback and surveys. The BPMD should continue to develop ways to enhance tracking of
their communications.
Box 4.1. Converting analysis into content for different audiences on digital communications
channels: UK Office for Budget Responsibility
In order to shape analysis into content, the OBR uses a tier system whereby content in a large amount
of detail is produced for those who have the time and knowledge to read it, and short, simplified or
snappy information is produced or repackaged, for those who do not have the time, or who just have
a general interest. The message is the same but presented in varied ways.
As a practical example, for the OBR’s flagship forecast report at the top would be the 250 page
document, then the executive summary which highlights key messages in roughly 10 pages, and then
the overview that translates these messages to roughly 2 pages. From this overview, OBR takes
snippets of information and creates a “hero” or headline for the website’s home page. Then OBR picks
out main messages to show in animations, chart, tweets with quotes from the report or infographics.
Source: Authors, based on information provided by the UK OBR.
18 Followers as of beginning September 2019.
│ 53
4.2.3. Parliamentary debate
138. By informing the parliamentary debate, IFIs can strengthen the legislature’s ability
to hold the government to account. While the vast majority of OECD IFIs appear before
parliamentary committees, the BPMD stands out as highly engaged. This has been
facilitated in part by the NAO’s already strong relationship with and good reputation in the
Committee on Audit and with other Seimas committees.
139. The NAO leadership and senior staff of the BPMD typically appear before
parliamentary committees when an opinion or report is submitted to the Seimas – averaging
around 8-10 appearances annually. The main committees using the BPMD’s work are the
Committee on Audit (which is responsible for covering the work of the NAO) and the
Committee on Budget and Finance and the BPMD will typically appear before these
committees 3-5 times annually. Committee stakeholders widely praised the BPMD’s work
and the engagement of the leadership of the BPMD and the NAO. They appreciated the
BPMD’s self-initiated work, noting that the report on long-term sustainability was a
relevant and important contribution to the parliamentary debate on pensions. However, they
noted that a stronger media presence would push parliamentarians to pay closer attention
to the work of the BPMD.
Figure 4.5. Total appearances before parliamentary committees: Nov. 2014-Nov. 2018
Source: Authors, based on information provided by the BPMD.
140. With the support of the BPMD, parliament now takes a more whole of year
approach to the budget and fiscal policy. Previously the parliamentary debate focused on
the draft budget, starting in late October and ending in early December. Now parliamentary
debate also takes place in the spring, with the BPMD’s opinion on the endorsement of the
economic scenario in March and the opinion on the Stability Programme in May. Debate
continues in the autumn with the revised economic scenario and then the draft budget,
peaking in November/early December.
141. Yet similarly to the media, parliamentary stakeholders do not always distinguish
between the BPMD and the NAO functions. The BPMD has attempted to raise awareness
54 │
of its work by, for example, organising a conference within parliament on its long-term
sustainability report. While such conferences are useful outreach tools, turnout among
parliamentarians was very low. The BPMD may wish to consider additional outreach
activities, perhaps after the election period as part of the induction process to ensure that a
wider range of parliamentary stakeholders are aware of their role.
142. While just over half of OECD parliaments now have specialist analytical support
on the budget, the Seimas does not. This highlights the importance of the role that the
BPMD can play in helping the Seimas improve budgetary oversight, but may also hamper
parliamentarians’ ability to engage with the more technical aspects of the BPMD’s work.
4.3. Improved financial management and transparency gains
143. The BPMD has been successful in pushing for greater fiscal transparency. In
particular, its recommendations have helped bring about the first IMF “Fiscal Transparency
Evaluation of Lithuania”19 and the publication of a new “Budget at a Glance” for citizens
by the Ministry of Finance.20
144. The BPMD provides a new source of information for a range of stakeholders,
enriching their discussions and analysis – parliament, commercial banks, academics, and
international organisations, etc. As noted above, parliamentary committees regularly use
the BPMD’s work in their deliberations, taking a more whole of year approach to the budget
and fiscal policy. Commercial banks now use the work of the BPMD as a benchmark for
their own forecasts, including on specific aspects like structural balance or long-term debt
levels.
145. The creation of the BPMD has fostered discussions on fiscal data across
government stakeholders. Through its ongoing dialogue with the Ministry of Finance, the
BPMD has pushed for improvements in how government information and data, and the
budget documents, are presented, although stakeholders called on the BPMD to continue
to push for better presentation of government data online.
146. The BPMD’s self-initiated work on long-term fiscal sustainability fills the gap left
when the Ministry of Economy stopped publishing long-term forecasts eight years ago and
has contributed to the pension reform debate in parliament.
147. There are also signs that the BPMD has encouraged prudent behaviour by warning
on risks to compliance with fiscal rules. The BPMD notes that the MoF uses its warnings
on compliance when arguing in parliament against budget increases. Ex post analyses have
shown that fiscal rules were complied with in both 2016 and 2017 where the BPMD had
identified risks to compliance, although other factors may also have played a part, such as
the general government balance being better than forecast because of less expenditure on
co-financing of EU investments due to slow absorption of the EU funds.
19 The IMF report concluded that fiscal forecasting and budgeting practices meet good or advanced
practice in most areas, although there was some room for improvement, particularly around
reporting on fiscal risks.
20 See, https://finmin.lrv.lt/en/
│ 55
4.4. Conclusions and recommendations
148. The BPMD has been instrumental in pushing for greater fiscal transparency. In
particular, its recommendations have helped bring about the first IMF “Fiscal Transparency
Assessment of Lithuania” and the publication of a new “Budget at a Glance” for citizens.
149. Stakeholders report that the work of the BPMD has brought about increased public
and parliamentary debate around fiscal issues. The BPMD successfully engages with key
parliamentary committees and with the support of the BPMD, parliament now takes a more
whole of year approach to the budget and fiscal policy.
150. The BPMD has been less successful in engaging with the media, and media
coverage of the BPMD’s work has been declining. The BPMD should work to increase its
media presence, for example reinstating press conferences for key reports. More generally,
the BPMD should seek to broaden the general public’s understanding of the BPMD’s role
and functions, why it was established, and how it contributes to the democratic debate on
the budget and public finances. Media presence is one tool to increase public awareness.
151. The BPMD still lacks a clear public identity and visibility, and stakeholders often
fail to distinguish between the BPMD and the NAO functions. Similarly, the leadership
arrangements lack clarity for many stakeholders. The institution’s impact could be further
strengthened by developing a clearer branding in its communications distinguishing its
function from the NAO.
152. The BPMD’s online communications are continuing to develop and there is a
positive trend in terms of increasing engagement online. An effective and efficient
communications strategy relies on frequent evaluations of the types of content that garner
the most engagement. The BPMD could benefit from better tracking of web and media
monitoring and other communications related performance indicators, as well as other
metrics used by peers such as tracking information requests. Efficiencies may be gained by
having the NAO website link directly to the separate BPMD website rather than
maintaining two separate versions.
56 │
References
Bank of Lithuania (2019), Lithuania Economic Review, www.lb.lt/uploads/documents/files/musu-
veikla/ekonomikos-analize-prognozes/lietuvos_ekonomikos_apzvalga_2019-03_en.pdf
BPMD (2019), Heatmap of the Lithuania Economy, www.ifi.lt/isvada.aspx?id=10286
BPMD (2018), Opinion on the Endorsement of Economic Development Scenario (27 March 2018),
www.ifi.lt/isvada.aspx?id=10223
IMF (2019), Republic of Lithuania: Fiscal Transparency Evaluation, IMF Country Report No. 19/122,
www.imf.org/en/Publications/CR/Issues/2019/05/03/Republic-of-Lithuania-Fiscal-Transparency-
Evaluation-46865
INTOSAI (2016), International Standards of Supreme Audit Institutions (ISSAI),
www.eurosai.org/en/topMenu/ISSAI.html
Kopits, G. (2011), “Independent Fiscal Institutions: Developing Good Practices”, OECD Journal on
Budgeting, Vol. 11/3, doi.org/10.1787/budget-11-5kg3pdgcpn42
Ministry of Finance of the Republic of Lithuania (2019), 2019 Budget at a Glance,
finmin.lrv.lt/uploads/finmin/documents/files/EN_ver/2019%20Budget%20at%20a%20Glance.pdf
Network of EU Independent Fiscal Institutions (2016), Defining and Enforcing Minimum Standards for
Independent Fiscal Institutions, www.euifis.eu/download2/minimumstandards_final.pdf
OECD (2018), OECD Economic Surveys: Lithuania 2018, OECD Publishing, Paris.
doi.org/10.1787/eco_surveys-ltu-2018-en
OECD (2019), OECD IFIs database,
www.oecd.org/gov/budgeting/OECD-Independent-Fiscal-Institutions-Database.xlsx (accessed 6
September 2019)
OECD (2014), OECD Principles for Independent Fiscal Institutions,
www.oecd.org/gov/budgeting/recommendation-on-principles-for-independent-fiscal-institutions.htm
│ 57
Pocytė, K (2019), ‘Gitanas Nausėda: kas vyksta mūsų valstybėje?’, DELFI, 4 April 2019,
www.delfi.lt/news/daily/lithuania/gitanas-nauseda-kas-vyksta-musu-
valstybeje.d?id=80807061https://www.lrytas.lt/lietuvosdiena/aktualijos/2019/04/04/news/prezidento-
posto-siekiantis-g-nauseda-nepriklausomos-institucijos-yra-torpeduojamos--9841810/ (accessed 6
September 2019)
von Trapp, L. et al. (2018), OECD Review of the Independent Authority for Fiscal Responsibility
(AIReF), www.oecd.org/gov/budgeting/airef-review-en.pdf
von Trapp, L., I. Lienert and J. Wehner (2016), OECD Principles for Independent Fiscal Institutions and
Case Studies, OECD Journal on Budgeting, Vol. 15/2, doi.org/10.1787/budget-15-5jm2795tv625
von Trapp, L., and S. Nicol (2018), “Measuring IFI independence: A first pass using the OECD IFI
database”, VoxEU eBook, CEPR Press, London.
Legislation
Constitutional Law on the Implementation of the Fiscal Treaty, 6 November 2014 (No XII-1289), e-
seimas.lrs.lt/portal/legalAct/lt/TAD/c4be7b32bb6b11e4a939cd67303e5a1f
Law on the Budget Structure, as last amended on 6 November 2012 (No XI-2318), e-
seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.440733?jfwid=cxhrny4f3
Law on Civil Service, as amended on 23 April 2002 (No IX-855), https://e-
seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.260891?jfwid=-fxdp7815
Law amending the Law on Civil Service, 29 June 2018 (No XIII-1370), e-
seimas.lrs.lt/portal/legalAct/lt/TAD/cad5a783834211e89188e16a6495e98c/asr
Law on National Audit Office, as last amended on 26 March 2015 (No XII-1588), e-
seimas.lrs.lt/portal/legalAct/lt/TAD/f54ba23218b511e5bfc0854048a4e288?jfwid=76rykbz8o
58 │
5. Annex A. Review team and acknowledgements
The review team would like to thank the Auditor General and staff of the BPMD, as well
as the many individuals who agreed to be interviewed for the review, for their frank and
candid discussions of all issues during the review process (see Annex B).
The review team would like to thank Andrew Blazey, Deputy Head of the Budgeting and
Public Expenditures Division, OECD, and Michal Horvath, Lecturer in Economics,
University of York, and founding Member of the Council for Budget Responsibility (CBR),
Slovak Republic, for their thoughtful comments.
The review team would also like to acknowledge the valuable contributions to the drafting
of the report of Emeline Denis, Junior Policy Analyst, Budgeting and Public Expenditures
Division, Directorate for Public Governance, OECD.
Review team
Seamus Coffey is Chairperson of the Irish Fiscal Advisory Council (IFAC) and a lecturer
in Economics in University College Cork (UCC). His teaching includes microeconomics,
government and business, advanced microeconomics and econometrics as well as adult and
distance education courses. His research and writing focuses on the performance of the
Irish economy. He is incoming Chair of the Network of EU Independent Fiscal Institutions
and a sometime contributor to print, broadcast and online media relating to the Irish
economy including fiscal outcomes, taxation, debt, national accounts and other issues.
Stephen Farrington has been Chief of Staff at the Office for Budget Responsibility since
October 2018. Prior to that he worked at HM Treasury for over 15 years, where he was
Deputy Director of Economics and led the Treasury’s analytical work on Brexit. He has
worked on a wide range of macroeconomic and fiscal issues, including overseeing the
Treasury’s analytic contribution to the Scottish independence referendum, head of
economic forecasting at the newly created OBR, fiscal stimulus stabilisation in the financial
crisis, and the ‘Five tests’ assessment of the case for UK membership of EMU. He has been
a technical adviser to the International Monetary Fund’s Fiscal Affairs Department since
2017.
Povilas Lastauskas is a Director of Center for Excellence in Finance and Economic
Research at the Bank of Lithuania and a research fellow at Vilnius University. He serves
as an editor of the Baltic Journal of Economics, Board member of Baltic Economic
Association, investigator of a few research grants on structural reforms, labour markets and
shocks transmission across economies. Povilas manages a new undergraduate degree
“Quantitative Economics” at Vilnius University as well as teaches econometrics, statistics,
and policy evaluation courses. He was previously a part of ECB taskforce on structural
reforms in Euro area, Principal Economist at the Bank of Lithuania, college lecturer,
Director of studies and official fellow at the University of Cambridge.
Scherie Nicol is a Policy Analyst in the Budgeting and Public Expenditures Division,
Directorate for Public Governance, OECD. She specialises in the areas of independent
fiscal institutions and parliamentary budget oversight. She began her career as an economist
for the economic development agency for the Highlands and Islands of Scotland. She
moved to the Scottish Parliament in 2008, providing research support to the elected
members in areas relating to public finance and the economy. In this role, she helped set
│ 59
up the Financial Scrutiny Unit and worked on the devolution of increased fiscal powers to
Scotland.
Lisa von Trapp is a Senior Policy Analyst in the Budgeting and Public Expenditures
Division, Directorate for Public Governance, OECD. She leads the Division’s work on
oversight, with a focus on the role of independent fiscal institutions and parliaments in the
budget process. Prior to joining the OECD, she served as an advisor and representative to
Europe for the World Bank's Parliamentary Strengthening Programme. As a parliamentary
development practitioner, Lisa has worked to promote good governance and stronger
oversight with a range of institutions including the United Nations Development
Programme, the Commonwealth Parliamentary Association, the National Democratic
Institute, the Swedish International Development Agency, and Parliamentarians for Global
Action.
60 │
6. Annex B: Interview list
The review team would also like to thank all those who have contributed evidence and
insights to this review, in particular individuals from the following institutions and groups
who met with the review team during its mission to Vilnius in April 2019:
Bank of Lithuania
BPMD Advisory Panel Members
BPMD
Commercial Banks, including:
o Swedbank
o Luminor
o SEB
European Commission – DG ECFIN Country Desk
IMF country desk
Journalists from Verslo Žinios
Ministry of Finance, including:
o Vice Minister (Miglė Tuskienė)
o Budget Department
o Fiscal Policy Department
o State Treasury Department
Ministry of Economy and Innovation – Economic Development Division
National Audit Office
The Office of the Government of Lithuania
S&P Global Ratings Agency
Seimas (Committee on Audit and Committee on Budget and Finance)
Statistics Lithuania
Vilnius University (Institute of International Relations and Political Science)
www.oecd.org/gov/budgeting